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January 1 - January 23, 2025
People didn’t maximize value, he said; they maximized “utility.”
Bernoulli
explained the desire to buy insurance.
Maurice Allais.
Allais paradox had become the most famous contradiction of expected utility theory.
“Obviously it is not regret itself that determines decisions—no more than the actual emotional response to consequences ever determines the prior choice of a course of action,” Danny wrote to Amos,
“There is an asymmetry here, because considerations of how much worse things could have been is not a salient factor in human joy and happiness.”
Asymmetry
When they made decisions, people did not seek to maximize utility. They sought to minimize regret.
Asymmetr
It was as if Danny thought that by anticipating his feelings he might dull the pain they would inevitably bring.
“When one fails to take action that could have avoided a disaster, one does not accept responsibility for the occurrence of the disaster.”
That was another rule of regret. It skewed any decision in which a person faced a choice between a sure thing and a gamble.
“The absence of definite information concerning the outcomes of actions one has not taken is probably the single most important factor that keeps regret in life within tolerable bounds,”
People treated all remote probabilities as if they were possibilities.
The audience contained at least three current and future Nobel Prize winners in economics: Peter Diamond, Daniel McFadden, and Kenneth Arrow.
“framing.” Simply by changing the description of a situation, and making a gain seem like a loss, you could cause people to completely flip their attitude toward risk, and turn them from risk avoiding to risk seeking.
Richard Thaler.
which was why a pilot without an instrument rating who flew into clouds had an average life expectancy of 178 seconds.*
“However, there is a reason to suspect a major bias against the acknowledgment of the true impact of such states on experience. . . . It is expected of mature individuals that they should feel the pain or pleasure that is appropriate to the circumstances without undue contamination by unrealized possibilities.”
He wanted to investigate how people created alternatives to reality by undoing reality. He wanted, in short, to discover the rules of the imagination.
To experience envy, it is sufficient to have a vivid image of oneself in another person’s shoes; it is not necessary to have a plausible scenario of how one came to occupy those shoes.” Envy, in some strange way, required no imagination.
One rule was that the more items there were to undo in order to create some alternative reality, the less likely the mind was to undo them.
The undoing rules
This was perhaps one way time heals wounds, by making them feel less avoidable.
He was less likely to undo his own actions than he was to undo the situation in which he found himself.
Locus of agency
The mind also preferred to go downhill when it was engaged in undoing. “The Downhill Rule,” Danny called this.
That was the moment when the story unspooling in Danny’s mind began to change.
“Psychology flew in the face of Marxism. It was on the list of things that didn’t need to exist.”
People were blind to logic when it was embedded in a story.
In overwhelming numbers doctors made the same mistake as undergraduates. “Most
evolutionary psychology, which had in it the notion that the human mind, having adapted to its environment, must be very well suited to it.
Evolutionry psychology
A lawyer steeped in the writings of Amos Tversky and Daniel Kahneman took a federal government job in 2009. Drawing upon Kahneman and Tversky’s work, he pushed for changes in the rules, so that homeless kids no longer needed to enroll in the school meal program. Instead they automatically received free breakfast and lunch. Jason never went hungry, and remained in school.
The power of psychology
Peter Diamond
“The problem,” says Harvard social psychologist Amy Cuddy, “is that psychologists think economists are immoral and economists think psychologists are stupid.”
young economists with an interest in psychology.
George Loewenstein
The argument that Danny and Amos started would spill over into law and public policy.
“Prospect Theory,” scarcely cited in the first decade after its publication, would become, by 2010,
People didn’t choose between things, they chose between descriptions of things.
Consumer choice
“choice architecture.”
Robert Tibshirani
It is sometimes easier to make the world a better place than to prove you have made the world a better place.
Terry Odean.
He established this private rule for his imagination once he realized that, after he had fantasized about something that might actually happen, he lost his drive to make it happen.
