November 27, 2016 – This post was published and lived happily on the Engel Journal until around August 2013 when I changed from a self hosted WordPress site to WordPress.com. Fortunately, a PDF version of the eMindset exists for you to see here:
ORIGINAL POST
Lauri D. Goldenhersh & David Eisaiah Engel.
April 30, 2010. San Diego, CA.
Lose $1,000 (100% chance) vs. $2,000 (50% chance)?
Reference point = status quo (usually)
Completed:
How can advertisers use this? A: Frame offer as loss prevention
Low probability chances
Preferences reversed
Which feels more comfortable:
Faced with gain, prefer more risk
Win $1,000 (5% chance) vs. $50 (100% chance)?
Faced with loss, prefer less risk
Lose $50 (100% chance) vs. $1,000 (5% chance)?
Completed:
How can advertisers use this? A: Use a high risk, high reward offer
Loss > gain
Loss is 2x more powerful than gain (emotionally)
How would you feel about winning $1,000?
“The aggravation that one experiences in losing a sum of money appears to be greater than the pleasure associated with gaining the same amount.” – Kahneman & Tversky
How would you feel about losing $1,000?
Completed:
How can advertisers use this? A: Position as insur- ance against a bigger loss
Certainty is best
People tend to prefer certainty, even if reward is smaller
Which feels more comfortable:
Win $1,000 (100% chance) vs. $3,000 (50% chance)?
Completed:
How can advertisers use this? A: Give prospects a safety net–like a 100% satisfaction guarantee
History
Amos Tversky & Daniel Kahneman
What can we learn from the authors’ unconventional method of research?
Started work around 1975
Which professional disciplines regularly use this theory?
Original name “value theory”
How can I use this theory in my line of work?
Met each afternoon for several hours
Gambled & observed their own instincts
Assumed their instincts were true for all people–to rapidly formulate theory
In a few months, 20+ theoretical formulations
Seriously verified formulations later
Introduced final theory in 1979 issue of Econometrica – ‘Prospect theory: an analysis of decision under risk’
Completed:
This eMindset is based on the article by Chris Guthrie, “Prospect Theory, Risk Preference and the Law,” Northwestern University Law Review 97.3 (2003), Questia, Web, 28 Apr. 2010.
What theories does Prospect Theory disagree with? A: Rational choice theory, Expected utility hypothesis
High probability chances
Faced with gain, prefer less risk
Which feels more comfortable:
Faced with loss, prefer more risk
Win $1,000 (100% chance) vs. $2,000 (50% chance)?
Decisions evaluated against reference point
Lose $1,000 (100% chance) vs. $2,000 (50% chance)?
How can advertisers use this? A: Frame offer as loss prevention
Low probability chances
Preferences reversed
Loss > gain
How would you feel about losing $1,000?
Certainty is best
This eMindset is based on the article by Chris Guthrie, “Prospect Theory, Risk Preference and the Law,” Northwestern University Law Review 97.3 (2003), Questia, Web, 28 Apr. 2010.
