So nature has kind of tuned us to look at the negative side…

— Dan Ariely

Why does cash feel so different? The agony of parting with our money has to do with the saliency of, do we see this money going away? And it has to do with the timing of whether the money is going away at the same time we’re consuming.” “For example, we find that if you have a coin flip that you have a 50% chance of making $1,100 and a 50% chance of losing $1,000. The expected value is positive, but we don’t think of it as positive. We think, “Oh, my goodness. If I lost $1,000, I would be very miserable. If I won $1,100 I would be happy, but it wouldn’t offset it, so let me not take that bet.” Now, we think that the reason is evolutionary. If you think about nature, if you get something good (like you get to eat more food and so on) that’s a good thing, but if you do something bad, you can die. So nature has kind of tuned us to look at the negative side because if you get a bit more food, a bit more money or whatever, there’s a positive expected value but it’s limited. Whereas on the negative side, you can lose a lot. So because of that we just attune more to losses.”

Leave a Reply