The Warren Buffett Way

by Robert G. Hagstrom

“Worldly wisdom teaches that it is better for reputation to fail conventionally than to succeed unconventionally.”

Once again, Richard Thaler provides an interesting academic experiment to demonstrate this concept. In his study he started with two groups of people. People in the first group were given $30 in cash and told they had two choices: (1) pocket the money and walk away, or (2) gamble on a coin flip in which if they won they would get $9 extra and if they lost they would have $9 deducted. Most (70 percent) took the gamble because they figured they would at the very least end up with $21 of found money. Those in the second group were offered a different choice: (1) try a gamble on a coin toss: if they win they’d get $39 and if they lost they’d get $21, or (2) get an even $30 with no coin toss. More than half (57 percent) decided to take the sure money. Both groups of people stood to win the exact same amount of money with the exact same odds, but the situation was perceived differently.6