The Paradox of Choice: Why More Is Less

by Barry Schwartz

let’s look at the other side of the graph, which depicts response to losses. It too is a curve, not a straight line. So suppose I asked you this question: would you rather lose $100 for sure or have me flip a coin so that you lose $200 if it comes up heads and you lose nothing if it comes up tails? As in the last example, double the amount is compensated for by half the chances. If you don’t like risks in the first problem, you probably won’t like them in the second either. This suggests you’ll take the sure loss of $100. But chances are you didn’t, and the graph tells us why. Notice that the curve falls steeply at the beginning and then gradually levels off. This reflects what might be called the “decreasing marginal disutility of losses.” Losing the first $100 hurts worse than losing the second $100. So although losing $200 may be twice as bad objectively as losing $100, it is not twice as bad subjectively. What that means is that taking the risk to perhaps avoid losing anything is a pretty good deal. Thus, as Kahneman and Tversky again point out, people embrace risk—they are “risk seeking”—in the domain of potential losses.