Gains, Losses, and the Human Response to Risk

From Michael Lewis's new book, The Undoing Project (highly, highly recommend)

Imagine two scenarios with these choices:

Scenario 1: 
Choice 1: $500 in your pocket
Choice 2: 50% chance of $1000 and a 50% chance at $0

In this scenario, it's extremely likely that you are going to opt for choice 1. There is no risk, you get $500 and can walk away.

Scenario 2:
Choice 1: Lose $500
Choice 2: 50% chance of losing $1000 and 50% chance of losing $0

In this scenario, I bet that most people would opt for Choice 2. The risk of losing more is worth the potential chance to lose nothing.

People respond to risk very differently when it involves losses than when it involves gains. In a sense that with a gain, people are ready to take the sure thing even though they could've risked it for more, and in losses, people would rather gamble and potentially lose more for the chance to lose nothing.

How does this approach work with hockey? Well, take your pick of any coach around the NHL. It's highly likely that this coach has a player that he knows what he's going to get night in and night out. It might not be a very good player by objective standards, but again, the coach knows what he's getting. Now, consider the player who is scratched so this known commodity can play. The scratched player is an unknown. A risk of sorts. The coach doesn't know what he's going to get, so he is less inclined to play him.

Right here, we have the sure-fired $500 gain rather than the potential $1000 gain or risk of $0 gain.

If instead, these coaches flipped the script and found themselves losing $500 a night and they had a 50% chance of losing nothing in the pressbox every night, then maybe they'd be more inclined to flip the lineup and roll the dice.