The Paradox of Choice: Why More Is Less

by Barry Schwartz

the graph of prospect theory in view, think about this question: would you rather have $100 for sure or have me flip a coin and give you $200 if it comes up heads and nothing if it comes up tails? Most people asked this question go for the sure $100. Let’s see why. A sure $100 and a fifty-fifty chance for $200 are in some sense equivalent. The fact that the payoff for the risky choice is double the payoff for the sure thing exactly compensates for the fact that the chances you’ll get the payoff are halved. But if you look at the graph, you’ll see that psychologically, you won’t feel twice as good with $200 in your pocket as you will with $100 in your pocket. You’ll feel about 1.7 times as good. So to make the gamble psychologically worthwhile to you, I’d have to offer you something like $240 for a heads. Thus, Kahneman and Tversky point out, people tend to avoid taking risks—they are “risk averse”—when they are deciding among potential gains, potential positive outcomes.