Decision (ii). Choose between
E: a sure loss of $750 [13%]
F: 75% chance to lose $1,000 and 25% chance to lose nothing [87%]
Notice that the expected value of option D is .25$1,000¼$250, whereas
the expected value of option F is .75$1,000¼$750. Hence, as the data
show, the majority choice in decision (i) is risk averse, and the majority choice
in decision (ii) is risk seeking, as predicted by the value function. As it turns
out, 73 percent of the subjects chose a combination of the two most popular
options, C and F, and only 3 percent of the subjects chose a combination of the
two least popular prospects, D and E. Simple calculation, however, shows that
the combination of C and F yields prospect A above, whereas the combination
of D and E yields prospect B. Thus, a great majority of subjects violated domi-
nance and selected an inferior combination of prospects. In contrast, when
subjects were presented with a direct choice between A and B, everybody nat-
urally chose the dominant option B. Thus, the principle of dominance is obeyed
when its application is transparent, but is often violated when it is not. In par-
ticular, the demonstration above shows that the tendency to evaluate prospects
in isolation, combined with the common risk attitudes captured by figure 26.4,
can lead to the selection of a dominated option.
The effects of framing and the characteristics of the value function are not
limited to monetary outcomes, as demonstrated by the following choices be-
tween health policies involving human life (Tversky and Kahneman 1981):
Problem 4ðN¼ 152 Þ
Imagine that the United States is preparing for the outbreak of an
unusual Asian disease, which is expected to kill 600 people. Two
alternative programs to combat the disease have been proposed. Assume
that the exact scientific estimates of the consequences of the programs are
as follows:
If Program A is adopted, 200 people will be saved. [72%]
If Program B is adopted, there is 1/3 probability that 600 people will be
saved, and 2/3 probability that no people will be saved. [28%]
Notice that both programs have the same expected value in terms of human
lives. Because saving people is perceived as a ‘‘gain,’’ the majority of subjects
made the risk-averse choice of saving 200 people for sure over the chance of
saving either 600 people or no one. A second group of subjects was given the
same cover story with these descriptions of the alternative programs:
Problem 5ðN¼ 155 Þ
If Program C is adopted, 400 people will die. [22%]
If Program D is adopted, there is 1/3 probability that nobody will die,
and 2/3 probability that 600 people will die. [78%]
Here the outcomes of the two programs are described in terms of lives lost.
Accordingly, the majority of subjects made the risk-seeking choice, avoiding
the sure loss of 400 lives in favor of the chance to save either all 600 or no one.
Subjects again exhibited the familiar pattern of risk aversion in the domain of
gains and risk seeking in losses. However, problems 4 and 5 present the same
606 Eldar Shafir and Amos Tversky