Please enable JavaScript.
Coggle requires JavaScript to display documents.
31.Risk Policies and Decision Making - Coggle Diagram
31.Risk Policies and Decision Making
Loss Aversion
Importance of Losses
Losses weigh more than gains in decision-making.
Affects how individuals take risks.
Impact on Behavior
Leads to irrational decisions in risk-taking.
Individuals avoid losses even at the cost of higher gains.
Probability and Decision Making
High Probability
In the case of gains: prefer a guaranteed small gain over a larger, uncertain one.
In the case of losses: avoid a moderate loss by risking a large loss.
Low Probability
In the case of gains: individuals may take chances, even with a low chance of success.
In the case of losses: individuals prefer to insure themselves against small losses.
Optimism Bias
Effect on Risk-Taking
Encourages individuals to overestimate the likelihood of positive outcomes.
Results in overconfidence and riskier decisions.
Impact on Decision Series
Leads to suboptimal decisions when made in isolation.
Greater losses occur when decisions are not made with a long-term perspective.
Strategy for Rational Decisions
Mathematical Reasoning
Making decisions based on probabilities rather than intuition.
Helps avoid excessive optimism or loss aversion.
Global Risk-Taking Strategy
Focus on long-term outcomes and overall risk management.
Avoid placing all resources into one risky decision ("don’t put all eggs in one basket").
Kahneman's Advice
Ask if a decision is the last time dealing with a random event to ensure rationality.
Use a global perspective to evaluate the risks and consequences of each decision.