When was the last time you took a risk? Did you think long and hard about it – weighing all your options? Or was it a snap decision? Research shows that women are less likely to take risks than men. But the reason might be different than you think.
Hal Miller, professor of Psychology at Brigham Young University, has developed a new method of experimentation to measure the human emotional response to gains and losses in risk-taking and decision making. He found that women’s brains react more intensely to perceived gains and losses. However, this does not mean that women are necessarily more emotional, but that a woman’s emotional reaction to a loss is, on average, greater than her emotional reaction to a gain, when compared to men’s reactions.
To illustrate this point, let’s imagine two scenarios:
1.) Imagine that you and I bet 100 dollars on the flip of a coin. You guessed heads and you won. The 100 dollars is yours. Do you want to keep the money? Or should we go double or nothing?
2.) Now, let’s change the scenario. You and I bet 100 dollars and you guessed heads. Sorry pal, you lost. Now, do you want to accept the loss and walk away? Or do you want to go double or nothing?
As humans, we dislike losing more than we like winning. That’s why the average person is more likely to try a double or nothing bet in scenario 2 than in scenario 1.
In 2002, a man by the name of Daniel Kahneman won a Nobel prize for an explanation of this phenomenon, and how it applies to economics. It’s called prospect theory. In short, Kahneman concluded that we make decisions based on how we perceive our potential gains and losses. He also proved that we are more likely to avoid risks when there is a potential loss than when there is a potential gain.
“We actually have a pretty good idea of the ratio…or by how much people hate losing more than they love winning,” said Kahneman. He estimated that it was somewhere between a 2:1 and a 3:1 ratio.
Dr. Miller, through his new methods, has identified, via electroencephalogram (EEG) brain-wave technology, a more precise measurement of how much more we hate losing than we love winning. The average human ratio is 2:1, the reaction to a loss being greater.
The difference between Kahneman and Dr. Miller’s experimentation is that Kahneman measured people’s cognitive decision-making. Miller’s experiments, however, are strictly behavioral. They only measure the behavior in relation to the emotions experienced.
Further, “[The experiments used by Kahneman] were largely hypothetical,” says Miller, “whereas our experiments are in real time and real space; real loss and real gain.”
Are our Decisions More Determined than we Think?
It is possible, then, that human risk-taking is more determined than we think it is. It is possible that our experiences and emotions govern our decisions more than we would like to admit. The implications of Dr. Miller’s findings are interesting to consider.