SO WHAT?

If we wish to act rationally, we ought to make decisions by weighing the

probability and desirability of the various outcomes that would result from
deciding one way or the other. The manner in which those outcomes are
portrayed should make no difference. The water in a glass that is described
as half-full or half-empty either way you will still drink the same amount of water.
However, the human mind turns out to be significantly swayed by how potential
outcomes are portrayed.

There are many other examples of how the framing of alternatives can
influence our decisions. One is our use of psychic budgets. For example, if buying a
new house, we might be prepared to spend more on things like garden gnomes than
we would if the house were already ours. The reason is that, before the house is
bought, the cost of the gnomes falls under the budget for the entire house. However,
after the house is bought, the cost of the gnomes falls under the tighter budget of
everyday expenses, and so seems comparatively extravagant. Needless to add, sales
professionals are happy to exploit our budgeting biases, craftily inflating the asking
price for accessories to a major purchase.
Another example of framing effects involves presenting alternative options
as either maintaining the status quo or as altering it. Suppose you
have a zero chance of developing a fatal disease. How much would you pay
to avoid having a 1 in 1,000 chance of developing it? Most people say that
they would be prepared to pay several thousand dollars. However, now suppose
that you already have a 1 in a 1,000 chance of developing that disease.
How much would you now pay to reduce that risk to zero?
Inconsistently, most people say that they would be prepared to pay only a
few hundred dollars. Why is this?
An answer is provided by the fourth and final postulate of prospect theory:
The loss of a benefit is considered more disadvantageous than the
gain of that benefit is considered advantageous. One implication of this
postulate is that, to induce people to accept a gamble involving an equal
chance of winning or losing, it is necessary to award them more for winning
than to penalize them for losing. For example, only a third of people
accept an equal chance of winning $200 or losing $100.Another example are the
betting houses if you gamble 2 $ you might win 10$.
The existence of this bias in favor of the status quo can explain why people
pay more to avoid potential risks than they do to eliminate preexisting
ones.

But why do costs psychologically outweigh benefits?

Bad experiences have a more powerful effect on us than good experiences .There have
been studies that showed that 95 % of us will take action for a bad experience such as
a bad service or a poor quality product , 1 in 3 people under 24 will share it online
and over 25 % of us will tell a friend to never to use that product again.
Another possibility is that the tendency to weigh costs more heavily than gains may
have evolved over time because it conferred a survival benefit on our forefathers. This
is not to deny that people vary considerably in their penchant for
risk-taking. For example, people with high self-esteem take more risks on
average than people with low .Another study shows that people who listen to fast
music are more probably to take risks than the ones who listen to calm music.

So If prospect theory is true, then why is gambling such a popular pastime?

The answer is that most amounts gambled are psychologically trivial. If only very
large bets could be laid, gambling would disappear overnight. Prospect theory
properly applies only when significant amounts of money are involved.

AFTERTHOUGHTS

This kind of mental duality also emerges when people are alerted to
other cognitive biases, in particular those that involve probability judgments.
Consider a lottery in which the winning 6 numbers are to be chosen
at random from a pool of 36 numbers. There are two tickets for sale.
One features the numbers "1,2,3,4,5,6," the other, "2,18,17,29,4,35."
Which ticket would you buy? second ticket
The odds of a ticket with random numbers winning certainly seem better than the odds
of a ticket with consecutive numbers winning
The ticket featuring the randomly numbers is chosen on the basis of its similarity to
past winning tickets, not on the basis of correct statistical logic.

How can we make sense of the fact that half our mind can understand
something while the other half cannot? One way to view the matter is by
analogy with perceptual illusions .For example Rabbitduck illusion
Perceptual illusions of this sort cannot be eliminated from consciousness because our
brains are physiologically hard-wired to produce them. No amount of effort can
reason them out of existence. Their illusory quality can only be abstractly pondered.
The same may be true of many of our cognitive biases.
CONCLUSIONS
People avoid risks when they stand to gain, but take risks when they stand
to lose. Therefore how a choice is framed, in terms of loss or gain, can
influence how people choose, over and above the objective consequences
of choosing one way or the other.