Human Nature

Kevin Drum is looking for fundamental aspects of human nature that people don't pay enough attention to. I'm sure that there are a long list but he offers these two for a start:


1.Loss aversion: people really, really hate to lose something they already have and will forego even favorable risks to avoid it.

2.Regression to the mean: an especially strong performance is likely to be followed by a weaker performance and vice versa.

I'm going to ignore the second, because it seems to me to be both obvious and misleading. Obvious in the sense that your best day ever is likely to be better than most of the next days. Misleading in the sense that extraordinary performance is often an excellent predictor of very good future performance. I'm especially interested in those that run counter to the fundamental assumptions of classical economics, and the first fits that bill.

Kevin's commenters offer a number of elaborations on that idea. One is that we tend to strongly prefer a sure thing to a chance at more - a bird in the hand is better than two in the bush. Most people offered the choice of a 10,000 dollar sure thing or a fifty-fifty chance at $30,000 will pick the sure thing.

Another commenter points to this Wikipedia article on cognitive biases.

My belief is that these so-called cognitive biases have their explanation in two fundamental facts: first, humans are selected by evolution not for profit maximization but for survival and reproduction maximization and second, our brains have limited computational power.

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