A thread through the archive
Essays tagged “loss aversion”. Follow an idea across the archive.
Scott Alexander argues that despite some replication failures, the core of behavioral economics remains valid and valuable, with the field continuing to evolve and refine its understanding of human decision-making.
Scott explains prospect theory, Kahneman and Tversky's model of how people actually make decisions, showing how its value and probability weighting functions predict numerous cognitive biases including loss aversion, scope insensitivity, and framing effects.
Scott calculates that on exams penalizing wrong answers at half the reward for correct ones, guessing always has positive expected value, but none of his intelligent classmates would accept this logic despite clear explanations.
Scott explores how small inconveniences can powerfully shape behavior, from China's Great Firewall to rebate forms to credit card spending, and discusses policy implications including opt-out government programs.