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Pseudocertainty effect

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The pseudocertainty effect is a concept from prospect theory. It refers to people's tendency to make risk-averse choices if the expected outcome is positive, but risk-seeking choices to avoid negative outcomes. Their choices can be affected by simply reframing the descriptions of the outcomes without changing the actual utility.

Example (Kahneman and Tversky)

An epidemic breaks out that's likely to kill 600 people if left untreated. Treatment strategy A will save 200 people. Treatment strategy B has 1/3 chance of saving 600 people and 2/3 chance of saving nobody.

From 152 people questioned, 72 percent recommended strategy A and 28 percent recommended strategy B. Most respondents preferred the definite positive outcome of saving 200 people, over the conditional but larger positive outcome of saving 600 people.

Next, 155 people were given the same data in a different way. They were told: under treatment strategy A, 400 people will die. Under treatment strategy B, there is a 1/3 probability that nobody will die, and a 2/3 probability that 600 people will die. With this formulation, 78% of the 155 respondents chose strategy B. They were willing to accept the risk of a larger negative outcome (600 people dying) to have a chance of averting an otherwise definite negative outcome (400 people dying).


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