It IS the Winning or the Losing that Matters

A couple of thought experiments.

First One.

Imagine you’re in the mood for a snack and you buy a bar of chocolate. The bar has 6 chunks, and you eat them all – How do you feel ?

Now imagine again you’re in the mood for a snack and you buy a bar of chocolate. This time the bar has 7 chunks, and you eat 6, but then accidentally drop the last one – How do you feel now ?

Second One

Imagine you work for a company, earning £20k a year. The company amalgamates your office with another. You learn that there is  someone in the other office doing exactly the same job as you, and that they earn £30k a year. The company decides the fairest thing to do is to equalise both your salaries on £25k a year – How do you feel ?

Now imagine the same thing again, but this time imagine that you’re the employee earning £30k a year – How do you feel now ?

Seems obvious doesn’t it – nobody likes having something they already have taken away from them. We don’t like our expectation not being met, we have a sense of entitlement: “I deserve it, I’ve worked hard for it/I’m owed it” – and sometimes we confuse this sense of entitlement with fairness.

Until relatively recently classical economics struggled with this concept – in the second example the employees should be equally satisfied, after all they’re earning the same amount of money for doing the same work. Likewise in the first example (assuming the bars cost the same, and the size of the chunks are the same) the same amount was paid for 6 chunks of chocolate, so the same amount of satisfaction should result.

We’re just not that clever – our emotional tail, wags our rational dog !

It makes a huge difference whether we see things as loss or a gain. Of course we like gaining new things, but we really hate loosing things we already have, and it turns out we hate loosing more! This is referred to as loss aversion.

It underlies all kinds of behaviours – from why gamblers and market traders will throw good money after bad to try and ‘recover a position’, to why taxi-drivers work much longer on a slow-day trying to make their daily average, but go home early on fast days once they’ve made their money – when they should probably do exactly the opposite.

Lotteries and insurance are just different ways of framing the same thing, after all.

As ideas of fairness in society are being debated more and more due to the effects of the continuing economic downturn, how societies ‘winners and losers’ feel and what they find acceptable, are increasingly important questions – whether at the top of society in the mansions of bonus culture‘, or at the bottom on the benefits cultureestates.

Our sense of fairness and entitlement isn’t just an issue when considering public/private sector pensions, pay cuts, library closures, child benefit thresholds, CEO fat cats and inheritance tax limits . . . it’s also frames the wider debate about the status of the rich West in the world and our sense of entitlement to resources, access to oil, the ‘right’ to continue emitting carbon, and crucially maintaining the power (economic, cultural and military) to dictate global events.

Having an awareness and understanding of our own and our societies aversion to loosing things we feel are already ‘rightly ours’, just might make it a little bit easier for us to re-evaluate our sense of fairness, hopefully making the world a tiny bit better in the process.

Two videos – one from Daniel Kahneman, the Nobel Prizewinning developer of Prospect Theory and author of Thinking Slow and Fast, the other from the poker coach Jimmy Legs. Very different people saying the same thing . . .

 

Photo by Images_of_Money via Flickr

RELATED ARTICLES – Jam Tomorrow,  More Equal Than Others

Comments

  1. I think you are making some very good points here, expanding on the concept of ‘half full, half empty.’ And re-evaluating our sense of fairness within a universal framework rather than an egocentric one would certainly be a move in the right direction.

  2. It’s on the list Gareth, it’s on the list . . .

  3. Gareth Richards says:

    Daniel Kahneman must read book Thinking fast and slow, details many ways in which our thinking is deficient. Better enguage your system 2 and actually read it Mr Starfish.

    P.S. You can only understand my comment property after you’ve read his book.

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