Frames of Mind:
or Playing Safe?
“The optimist believes that this is the best of all possible worlds. The pessimist fears that this may be true. ”
Robert Oppenheimer (1904–1967), father of the atomic bomb
If ever you feel bored, try this neat experiment at home. Take three glasses. Fill the first with ice water, the second with hot water, and the third with lukewarm water. Now place your left hand in the first glass and your right in the second. Wait for about a minute. Finally, transfer both of your hands to the third glass. The result: the same water will feel, at the same time, warm to your left hand but cool to your right. What does this odd perceptual anomaly indicate? It indicates that perceptions of intensity do not depend on the absolute strength of a stimulus, but rather upon its relative strength. Otherwise stated, perceptual experience is influenced by its context. In this chapter, we review research showing that what is true of our perceptual experience is also true of judgments and decisions more generally.
Suppose someone made you the following offer, call it offer X. You must choose between either (a) receiving either $ 15,000 for certain, or (b) having an equal chance of receiving $ 10,000 or $ 20,000. What would you do? It turns out that most people prefer to take the guaranteed $ 15,000. However, from a strictly rational point of view, it should make no difference how someone chooses: the expected value of each alternative is the same.
Let's explain the jargon. The expected value of an alternative is the likelihood that it will happen multiplied by the desirability of its happening. Likelihood is represented by a value between 0 (impossible) and 1 (inevitable),