The Isolation Effect Presenter YUXUAN LIU Winnie Liu

The Isolation Effect Presenter: YU-XUAN LIU (Winnie Liu) 02/10/2019

Which one do you prefer? A Get $500 for sure B 50% chance of getting $1, 000

Which one do you prefer? C Loss $500 for sure D 50% chance of losing $1, 000

Prospect Theory 1 2 3 People respond to changes rather than absolute level. People approach risk very differently when it involves losses than when it involves gains. People don’t repond to propability in a straightforward manner.

Prospect Theory

Isolation Effect • I s o l a t i o n E f f e c t : When people face a risky choice, they will evaluate the options individually, and different methods of description will affect people's choices. • Therefore, it is possible to affect someone’s attitude towards risk by changing the description (i. e. The chance of the surgery being successful is 90%. VS. There is a 10% chance that the surgery will fail. )

Isolation Effect Imagine that the U. S. 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 estimate of the consequence of the programs is as follows: • If Program A is adopted, 200 people will be saved. • If Program B is adopted, there is a 1/ 3 probability that 600 people will be saved, and a 2/ 3 probability that no people will be saved.

Isolation Effect Imagine that the U. S. 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 estimate of the consequence of the programs is as follows: • If Program C is adopted, 400 people will die. • If Program D is adopted, there is a 1/ 3 probability that nobody will die and a 2/ 3 probability that 600 people will die.

Daniel Kahneman & Amos Tversky Daniel Kahneman (1934－) Amos Tversky (1937 -1996)

Danny Kahneman & Amos Tversky 1969 Started working together at Hebrew University in Jerusalem. 1977 Kahneman decided to get married and stay in the USA. He forced Amos to make a decision. 1979 Developed Prospect Theory 2002 Kahneman won Nobel Prize