From Michael Lewis’s new book, The Undoing Project (highly, highly recommend)
Imagine two scenarios with these choices:
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.
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.