Loss Aversion versus Rationality

Jonah Lehrer reviewed the contribution of Daniel Kahneman in a recent New Yorker essay. Essentially Kahneman has proven that the economic model of human thinking — that is, that human thinking is rational — is flawed. His work is part of a larger exploration of how loss aversion, and other biases, play a role in the thinking and actions of our species. Kahneman’s work is based on surveys where the same situation is presented, but in two different lights: one that foregrounds gains and one that foregrounds losses. When presented with potential modest gains, individuals preferred them to riskier behaviors that would expose them to greater risk, if also greater gains. When faced with potential losses, individuals preferred to take a risk that might, in fact, lead to greater loss but also would perhaps lessen the loss. (I should note that in the case of Kahneman’s survey, the losses and gains were the same: the survey asked the question differently.)

Okay, so much rationality. Lehrer uses the book from which the report is drawn to posit that Kahneman’s work is ultimately optimistic: that if we can see ourselves for the flawed thinkers that we are, we can make things better. (A piece of our Enlightenment heritage, I would suggest.) Lehrer is less optimistic: he thinks we are just too stubborn. I think we think more diversely than simply rationally. There is more to our thoughts than those that can be articulated in a reasonable fashion.