The Powerball jackpot has risen to $US700 million. We used this opportunity to test a cognitive bias known as regret avoidance.
We constantly have to make decisions without perfect information — like choosing an investment, picking a new job or deciding to buy a lottery ticket. We consider the possible outcomes and the probability of each and make the best choice with the information we have.
If new information becomes available after we have made a decision we sometimes experience regret — like feeling buyer’s remorse after deciding to purchase an expensive item that goes on sale after your purchase.
When making decisions, we can anticipate future regret and incorporate the weight of that into our decision making. Lotteries provide a wonderful real life test for how regret avoidance impacts our decision making.
We have an office lottery pool which over 50 people participated in. We polled the participants and found that 85% of them joined the pool because they would be miserable if their colleagues won and they were left out. For many, It’s an easy decision to pay $US2 to avoid the possibility of feeling so much regret. That is regret avoidance.
But to really test this, let’s make one choice clearly superior. We went outside and tried to buy lottery tickets from people for more than they paid. The rational choice, in this case, would always be to sell your ticket and buy more tickets or pocket the extra cash and replace your tickets. But people aren’t known to be rational.
Most people refused to sell us their tickets for twice what they paid. They were worried that they might be selling a winning ticket and that decision would be too much to bear.
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