Psychologists have shown that our intuitive understanding of chance behavior is

Question

Psychologists have shown that our intuitive understanding of chance behavior is rather poor. Amos Tversky (1937-96) was a leader in the study of how we make decisions in the face of uncertainty. In its obituary of Tversky, the New York Times cited the following example: Tversky asked subjects to choose between two public health programs that affect 600 people. One had a probability of 1/2 of saving all 600 and a probability of 1/2 that all 600 will die. The other was guaranteed to save exactly 400 of the 600 people. Most people chose the second program. He then offered a different choice. One program had a probability of 1/2 of saving all 600 and a probability of 1/2 of losing all 600, while the other would definitely lose exactly 200 lives. Most people chose the first program. Discuss this example. What is the difference between the two choices offered? What is the mean number of people saved by the two options in each choice? What do the reactions of most subjects to these choices show about how people make decisions?

Explanation / Answer

In choice A

Option A , People saved = 1/2 (600) + 1/2(0 ) = 300

Option B , People saved = 400

In choice A

Option A , People lost= 1/2 (600) + 1/2(0 ) = 300, People saved = 600-300 = 300

Option B , People lost = 200. People saved = 600-200 = 400

The reactions of people to these choices show that people are irrational and do not take decisions using probability in real life. People find it difficult to make hard decisions.

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