Friday, October 29, 2010

Bad Decisions

I listened to this TED talk today while I was at work. Or maybe it was this one. I can't remember now which one it was. They're both good. Actually, they were pretty much mind-blowing. I recommend listening to them while you wash dishes, fold the laundry, or do homework. Or if you just want to sit there and listen to it; that's OK too.

One part of his talk was about the irrationality we find ourselves in when we make a decision. We tend to make decisions based on comparisons, not values. He gave this example:

Say you are walking down the street, heading to the theater to watch a play or listen to a concert or something. In your wallet you have the ticket to the event, which you paid $20 for, and you have a $20 bill. When you arrive at the theater you realize that you lost the ticket. Will you pay $20 more to buy another ticket?

The majority of people say "no." They're not going to pay $40 for something that was supposed to just cost $20! That's absurd!

Now take this situation. You're headed over to the theater and now all you have in your wallet are two $20 bills. When you arrive at the theater you realize you lost one $20 bill. Are you still going to pay $20 to buy your ticket?

Most people would respond "of course!" They walked all the way here to the theater and they're not just going to go home because they lost some money along the way. The two events aren't even connected!

And that's an area that's flawed in our thinking. In both cases, we are out $40. The ticket it worth $20. If we were completely and mechanically logical, the decision we make should be the same in both circumstances. The money doesn't care where it comes from or where it's going. It's just money.


Kathy Haynie said...

It fascinates me to think that money is stored labor.

Katie said...

It is ridiculous to suggest that you could actually listen to something while you wash the dishes. When in our married life have you ever been able to actually listen to any kind of recording over the sound of the water running from the sink?

Psh. Talk about being irrational.