Saturday, 26 January 2013

Becoming A Reality Gambler

Kahneman and Tversky's Loss Aversion

When I was a professional gambler I had to use my skills to make a living.  If you want to make money that way, it is good to be risk averse, because if you're taking big risks then you're investing in something with a minimal chance of reward.  Professional gamblers mostly have the skill to avoid such precarious situations - if they didn't they wouldn't be professional gamblers.  The primary reason that people are risk averse is that they quite naturally have an aversion to losses. Psychologists Daniel Kahneman and the sadly deceased Amos Tversky wrote well on this, with many practical examples of how we hate to lose more than we like to win.  It's obvious that you'd rather gain an extra £100 than lose £100, but it's also good to know that people place a greater emphasis on avoiding losses than making gains. In other words, your joy in gaining £100 is dwarfed by your upset at losing £100. The natural corollary of this is you're more likely to take a bigger risk in trying to avoid a loss than you are acquiring a gain. 

Kahneman and Tversky coined the term loss aversion to refer to the human tendency to become disproportionately averse to losses – so much so that we pass up significant gains in our social world to ensure that we don’t incur small losses.  The point being, these losses mostly turn out to be trivial, but the gains can be immense.  If you ask out the girl or guy you like and get turned down, you aren’t really any worse off than you started.  But if he or she says yes, and you become beloveds for the rest of your lives, your gain is huge.  Someone who has high intensity loss aversion may well choose not to ask her out – so while he avoids the tiny loss of embarrassment or rejection he may rob himself of a lifetime’s happiness.  The situation is the same for the one you asked out, of course; she won’t lose more than two or three hours by going out with you and finding you’re not the one – but she gains an awful lot if you turn out to be the one to make her happy in love. Instead of having loss aversion we might be advised to embrace its opposite – what we might call benefit keenness.

It’s a cold winter night, you’re a poet, and you see on a notice board that a new poetry group is meeting in town.  Embracing benefit keeness means you should go.  At worst you turn up and waste some of your evening – but at best you might meet some great new friends, enhance your creativity, widen your social circle, and improve your publishing prospects too.  Or it might be that you’re pondering whether to send that email to the friend with whom you’ve lost contact.  Or you might be wondering whether to try horse riding, or whether to learn the piano, or whether to visit that city you’ve always liked the look of, or whether to give a new author or music artist a look.  There are so many things that might lead you to unexpected pleasures, and onto life changing paths, with only a small cost attached if those pursuits turn out to be not for you.

Naturally, one mustn’t be frivolous either; there are many choices that can be costly if they turn out to be wrong.  The last thing you want is to find yourself committed to a lengthy study course in which you regret the subject chosen, or find that you moved in with someone you no longer want to be with, or that you left the city to find employment in a place you’ll go on to hate. 

But I fancy that life is full of potential benefits on which we often miss out by being too circumspect.  I realised recently how guilty I’ve been of this too.  And having pondered it, I like the idea grabbing hold of life with both hands and seizing every opportunity.  Sure, it might turn out that the email you send to the friend comes to nothing much; it might emerge that horse riding gives you too many aches; you may not have the dexterity for the piano; the city visited might be a big let down; and the new book or CD might end up in the charity shop.  In all probability, many of your pursuits will disappoint – but you won’t lose much by trying them.  On the plus side, grabbing life with both hands and seizing more opportunities with benefit keenness is bound to bring unexpected pleasures and rewards that those inflicted by loss aversion never discover.