Dilemma: The case of the lost concert tickets …

 

A classic “framing” question from Kahneman’s Thinking Fast, Thinking Slow

Here’s the situation:

A woman has bought two $80 tickets to the theater.

When she arrives at the theater, she opens her wallet and discovers that the tickets are missing.

$80 tickets are still available at the box office.

Will she buy two more tickets to see the play?

 

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Most (but, not all) survey respondents answer that the woman will go home without seeing the show.

Let’s try another situation …

 

 

A woman goes to the theater, intending to buy two tickets that cost $80 each.

She arrives at the theater, opens her wallet, and discovers to her dismay that the $160 with which she was going to make the purchase is missing.

$80 tickets are still available at the box office.

She has a credit card .

Will she buy the tickets and just charge them?

Most survey respondents think that she will charge tickets for the show if she has lost money.

Think about that for a moment.

At their core, aren’t these situations essentially the same?

In both, the woman has lost $160.

The central question in both situations is whether to shell out $160 to see the show.

What’s going on?

Kahneman points to 3 cognitive biases: the framing effect, “mental accounts”, and the sunk cost fallacy.

Again, these are fundamentally the same situations. The only difference is how they are stated or “framed”.

That’s the framing effect.

Simply put, an answer often depends on how  the question is asked.

Mental accounts are virtual budget categories the people keep in mind – sometimes consciously, usually sub-consciously.

Maybe you have mental accounts for clothes, food, recreation, wealth-building, etc.

For our theater-goer, the lost tickets probably came out of her now depleted recreation account … and, she couldn’t bring herself to hit up her wealth-building account.

Said differently:

When tickets to a particular show are lost, it is natural to post them to the account associated with that play.

The cost appears to have doubled and may now be more than the experience is worth.

The lost money probably got mentally “charged” to her wealth-building account, so she still had money to spend in her mind’s recreation account.

The sunk cost fallacy is pretty well known.

The lost tickets are a sunk cost that should be ignored … but usually isn’t.

The lost money isn’t a cost inextricably associated with the tickets … so there isn’t a tempting sunk cost to consider.

Moral of the story: Make “moving forward decisions” … ignore sunk costs whether they are monetary or emotional.

And, Kahneman says: “Broader frames and inclusive accounts generally lead to more rational decisions.”

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Kahneman, Daniel, Thinking, Fast and Slow, 2011

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