Daniel Kahneman (Nobel Laureate) and Amos Tversky (MacArthur Scholar) developed their “prospect theory” in the 1970’s.  One of the experiments they used to develop this theory involved people risking losing twice what they agreed to when the games began.  (Las Vegas knows this well, folks.)   They also understood the concept of marketing and positioning.  The scenarios they chose were identical, but the buzz words were the opposite.  In a nutshell, one cure saved 200 people, the other cure had a 1/3 chance to cure everyone and a 2/3 choice to cure no-one.    Then, the scenario was increased to include a cure that had 400 people die and another cure that had a 1/3 chance to kill no-one and 2/3 chance of killing 600.  The test panel (physicians, I might add) chose Cure 1 in the first scenario and Cure 4 in the second.   Except that Cures 1 and 3 are identical, as are 2 and 4.  (I won’t even bother to bring in the political advertising of last year about death panels and health care.)

How is it we make such stupid decisions?  We don’t know how to define the problem is part of the issue.  The second part is that we worry about our sunk costs, and not the return on potential new investments.

Let’s look at some real cases that are affecting us now.  We are worried that terrorist will destroy a plane or use it for a weapon.  (Why we are not worried that they will do that with a bus, a truck, or a train, is further proof that we can’t frame a problem!)  So, what do we do?   We come up with all kinds of rules for everyone flying.  Take your shoes off.  (Like we were at Mount Sinai and in the presence of the burning bush!)  No toothpaste, no mouthwash, no perfume, unless you want to check your luggage.  (And, provide umpteen profits to the airlines for each bag- and their loss rate is still no better than before 9-11, regardless of the technology improvements.)   Why can’t we just look for terrorists and keep them off the plane?   What? You think that is not possible?  Go to Israe-l.  Fly out of Ben Gurion airport and then tell me that they are not careful.  No shoe removals, there.

And, let us not forget healthcare.  The Democrats have proposed health insurance reform and continued Medicare.  The Republicans have proposed setting a maximum dollar payment and you deal with the rest.  (OK, if you are rich, but this is really the original “death panel” for the middle and lower classes.)  Neither party has addressed the real problem:  healthcare costs are spiraling out of control.  Why?  Because,  we reward hospitals and physicians for failure to keep us healthy (requiring multiple visits at additional payments) with the “fee for service” system and do not switch our basis to a” fee for results obtained” or “bundled services”.

There is a risk to doing nothing.  There is a risk to doing something.  Doing something smarter is the better choice. 

Share this: