Presentation Paradox

Daniel Kahneman, a Nobel prize winning expert in cognitive psychology, and his long timecolleague Amos Tversky designed the following simple, if somewhat dramatic test to show how achange of presentation can affect our decisions. Their test consists of presenting two variants ofa choice between two public health programmes that address a threat to the lives of 600 people.

The first variant is:
‘With programme A we know that 200 lives will be saved, whereas with programme B there is a one-third chanceof saving all 600 lives and a two-thirds chance of saving none.’

Kahneman and Tversky found that a clear majority of the people they presented with this choicepreferred A to B.

The second variant is:
With programme C we know that 400 lives will be lost, whereas with programme D there is a one-third chancethat none will die and a two-thirds chance that all 600 people will die.’

A majority of the people presented with this choice prefer D to C. Now, looking at the fourprogrammes, it becomes clear that, on the one hand, A and C are the same and, on the otherhand, C and D are also the same; the people saved in one presentation are the people not dyingin the other. So, whether one prefers A to B or the reverse, one ought express the same order ofpreference between C and D, and that is not the case with many of the people interviewed; thesepeople are violating the axiom of independence of choice.

Kahneman and Tversky (1979) developed a new theory to explain their findings. They suggestedthat people are generally risk averse when choosing between a sure gain and a chance of a largergain, but the same people may take a chance when forced to choose between a sure loss and onlya probability of a worse loss. The snag is that what appears as a sure gain or a sure loss is often aquestion of perspective that can be easily manipulated by the way a problem is presented.

Optical illusion eh! :) Be wary of your financial advisor!