LSAT 113, Section 1, RC Passage 4, Decision Making

This is an explanation for passage 4 of LSAT preptest 37, the June 2002 LSAT. This passage is about decision making. The passage discusses new and old research about how people fear loss more than they value gains.

This section has paragraph summaries and an analysis of the passage, links to the explanations for the questions are below.

Paragraph Summaries

1. Researchers have found that people fear loss more than they value gains. This explains some irrational political decisions.
2. People act to avoid loss more than to seek gains. But, if there is a certainty of loss, people will risk an even bigger loss if it gives them a tiny chance of no loss.
3. If a country thinks it has lost something, it will risk an even larger loss to get it back. The Falklands war is an example.

Analysis

This is an interesting decision on the rationality (or lack thereof) of decision making. Research shows that we’ll do stupid things to avoid a loss. That’s the main theme of the passage. The paragraphs are devoted to explaining specific parts of this phenomenon, and giving examples.

Let’s look at some examples to explain the research. First, the old findings: people fear loss more than they value gains.

Let’s make a bet. You give me $100, and I’ll flip a coin. Heads, I keep the money. Tails, you get $300.

It’s a very good bet, for you. If you could take this bet as many time as you wanted, you’d become the richest person on earth.

So, want to take the bet? If you’re like most humans, you hesitated. Sure, you could triple your money. But think of how much work it took to get $100. Your $100. You’re not going to gamble it away, are you?

You pay $100 to play and win $150 on average. But because humans fear loss, we don’t like that bet.

Now, the new research. It says that if we’re faced with a near-certain loss, we’ll risk a big loss to avoid it. Let’s look at an example.

You’re walking home with a crisp new $100 bill in your wallet. A mug with a gun comes up and tells you to hand it over. He doesn’t want the wallet, he just wants the money. You’ll never see this guy again.

Objectively, your situation isn’t that bad. Your maximum loss is $100. That’s nothing, in the grand scheme of things. You should feel lucky he hasn’t hurt you.

But some people act irrationally in this situation. They try to resist, or run, or fight. They’ll risk their life to save $100. Rich or poor, the instinct is the same. Humans don’t like certain losses.

Note the difference between subjective and objective. $100 is a small objective (actual) amount, but it seems like a larger subjective (perceived) amount because we really don’t like certain losses.

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