The General's Decision

By Dianna Doreen
Writer, mPower

In order to avoid an ambush in which 600 of his soldiers will die, a general must choose between two available escape routes. If he takes the first route, 200 soldiers will be saved. If he takes the second route, there is a one-third chance that 600 soldiers will be saved, and a two-thirds chance that none will be saved. Which route should he take?

Three out of four people thought that the general should take the first route. It is better to save those lives that can be saved than to gamble, when the most likely outcome is even higher losses.

The general again faces the ambush and must choose between two possible escape routes. If he takes the first route, 400 soldiers will die. If he takes the second route, there is a one-third chance that no soldiers will die, and a two-thirds chance that 600 soldiers will die. Which route should he take?

Four out of five people think that the general should take the second route. The first route, after all, involves the certain death of 400 men. At least with the second route there is a one-third chance that no one will be killed.

But, look closely at these two scenarios. Examples one and two are identical.

Why then, do people arrive at different judgements about the two cases? The only difference between the two cases is that the first case is stated in terms of lives saved, and the second is stated in terms of lives lost. Perceptions, whether positive or negative, can skew cognitive judgement.

Surely we understand that for purposes of this case, any lives that are not saved are lost. But, we give surprisingly different answers to the same problem when it is posed in a slightly different way because, as rule, we are much more sensitive to losses than to gains. Losses tend to have a greater emotional impact than gains. As a result, we are willing to take much more risk to avoid losses than to secure gains.

The information provided here is intended to help you understand the general issue and does not constitute any tax, investment or legal advice. Consult your financial, tax or legal advisor regarding your own unique situation and your company's benefits representative for rules specific to your plan.

The General's Decision

By Dianna Doreen
Writer, mPower

In order to avoid an ambush in which 600 of his soldiers will die, a general must choose between two available escape routes. If he takes the first route, 200 soldiers will be saved. If he takes the second route, there is a one-third chance that 600 soldiers will be saved, and a two-thirds chance that none will be saved. Which route should he take?

Three out of four people thought that the general should take the first route. It is better to save those lives that can be saved than to gamble, when the most likely outcome is even higher losses.

The general again faces the ambush and must choose between two possible escape routes. If he takes the first route, 400 soldiers will die. If he takes the second route, there is a one-third chance that no soldiers will die, and a two-thirds chance that 600 soldiers will die. Which route should he take?

Four out of five people think that the general should take the second route. The first route, after all, involves the certain death of 400 men. At least with the second route there is a one-third chance that no one will be killed.

But, look closely at these two scenarios. Examples one and two are identical.

Why then, do people arrive at different judgements about the two cases? The only difference between the two cases is that the first case is stated in terms of lives saved, and the second is stated in terms of lives lost. Perceptions, whether positive or negative, can skew cognitive judgement.

Surely we understand that for purposes of this case, any lives that are not saved are lost. But, we give surprisingly different answers to the same problem when it is posed in a slightly different way because, as rule, we are much more sensitive to losses than to gains. Losses tend to have a greater emotional impact than gains. As a result, we are willing to take much more risk to avoid losses than to secure gains.

The information provided here is intended to help you understand the general issue and does not constitute any tax, investment or legal advice. Consult your financial, tax or legal advisor regarding your own unique situation and your company's benefits representative for rules specific to your plan.