How much would it take for you to risk $10?
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Psychological literature shows that we are more sensitive to small losses and than small gains, with most people valuing a loss around 1.5-2.5 times as much as a gain. This means that we often turn down reasonable opportunities for fear of the loss. However over the course of our lives we will be exposed to many risks and opportunities and this invariably means that taking every small reasonable bet will leave us better off than saying no to all of them.

NOTE: The video is not saying to accept every bet, only those with reasonable odds (preferably in your favour), and those which if you lose would not cause significant financial or other damage. In those cases it is wise to be loss averse!

Filmed by Adrian Tan

Thanks to Physics Girl for suggestions on previous versions of this video. https://www.youtube.com/physicswoman

the air if you're right I give you the $10 if you're wrong you give me $10 I saw that coming

I guess in principle I don't agree with the idea of betting.

Okay, okay, but what if we just use this as like an allegory for life?

You know, It's not really about money and betting on a coin.

Okay, and my approach to risk is obviously a lot less

So people are passing up the opportunity to win $10 of my money.

But it kind of makes sense because they have to risk $10 of their money.

And it's a 50-50 chance, so really the bet has 0 value.

You only stand to lose 10, you stand to gain

I feel like I'm better off just leaving it as it is.

You only have to put up 10, I'm putting up

Which you got a 50% chance of right here if you took if you accept the bet

I don't know what the logical reason is for why I want that.

I've offered people up to $20 and they're still refusing to take the bet.

I mean, a 50% chance of winning 20, plus a 50% chance of losing 10, still gives the bet an overall value of

Why is it that you won't go for this bet?

I don't know, because I don't want to lose $10 just because of that easily.

I know but you could win $20 think about the gain.

I don't know I'm thinking more about what I lose than what I win I think.

I think that's exactly the point because we feel losses more than we feel gains There's an asymmetry in the way people perceive gains and losses losses are felt much more intensely in fact Psychologically most people weight a loss around twice as heavily as a gain, But this varies from person to person.

I said even if you had $50 I would still feel the same way.

You were gonna have to give me like a hundred, but I lost 10.

To avoid risking a loss, people will pass up even very favorable bets.

But is there a way to overcome our over sensitivity to losses?

Same deal, $20 for your 10, flip in this coin.

But then I'd be losing $10 each time, wouldn't I?

You'd be risking $10 each time, but you know this is 50-50, and you know that I'm giving you 10 chances.

If we played enough and I had enough, you know, of a stake of 10 dollars, then eventually, yes, I would make more money.

Why does repeating the same bet change it?

I don't think there's a rational thought behind it.

It's just a feeling that 1 gets when presented with the opportunity I don't know.

I think there is a rational reason behind it.

You're only gonna get 1 outcome But in a hundred tosses, you know that it's gonna be somewhere between like 45 and 55 times it's gonna go your way, 45 to 50 times, 55 times it's gonna go my way, right?

The point is, every time it goes your way, you win twice as much as you lose when it goes my way.

So the point is, doing it a hundred times, you're basically guaranteed to win money.

In fact, the expected value of a hundred of these bets is a win of

and there's only a 1 in 2, 300 chance of losing any money at all.

So even if you weight losses twice as much as gains, 100 bets is indisputably favorable.

How do you accept 100 of these bets if you won't first accept 1 of those bets?

It's not to encourage you to go to the casino where the odds are definitely stacked against you.

Instead, it is a metaphor for all the little risks and opportunities that come our way in our lives.

I mean, if you view each 1 as an independent event, you will often say no to even very good bets because you're afraid of the loss.

So if instead you can see each little bet as 1 of a series of bets, then you realize that if you take that bet every time, you may win and you may lose, but overall, on the aggregate, you will come out ahead.

My stroke of luck today has been terrible.

This video is in fact a bit of a risk for me.

Because I'm giving out all this money and it's only going to make money on YouTube if like half a million people see it.

So if you like this video, then you should share it with your friends, so that this actually turns out to be a positive bet for me.

Let me know in the comments below and tell me how much money I would have to put up in order for you to risk your $10.

Now this video was inspired by the book Thinking Fast and Slow by Daniel Kahneman, which I've recommended before because it's awesome and it also inspired me to make these cool videos, so check them out if you haven't already.

But since I've recommended this book before, I'm going to recommend something different today, my friend Phil Plait's book Bad Astronomy, which is all about misconceptions and misuses of astronomy from astrology through to the moon landing hoaxes.

It is an awesome book, so you should definitely check it out.

And in fact, you can download it for free by going to audible.com slash veritasium, or you can pick any other book of your choosing for a 1 month free trial.

Audible is a great audio book website with over

titles in all areas of literature, including fiction, nonfiction, and periodicals.

So I really wanna thank Audible for supporting me, and I wanna thank you for watching.


Speaker 0: I want you to consider this bet. Here's $10. This could be yours If

Speaker 1: I flip this coin in the

Speaker 2: air you guys call it in

Speaker 1: the air if you're right I give you the $10 if you're wrong you give me $10 I saw that coming

Speaker 3: laughter That's not a good bet for me. I guess in principle I don't agree with the idea of betting.

Speaker 1: Okay, okay, but what if we just use this as like an allegory for life? You know, It's not really about money and betting on a coin. It's more about our approach to risk.

Speaker 3: Okay, and my approach to risk is obviously a lot less

Speaker 1: than yours.

Speaker 3: You wouldn't do this bet? No, no. No, I don't have 10 bucks. My gut says don't bet. Why is that?

Because at the moment I have

Speaker 0: $10

Speaker 3: and later I might not.

Speaker 2: So people are passing up the opportunity to win $10 of my money. But it kind of makes sense because they have to risk $10 of their money. And it's a 50-50 chance, so really the bet has 0 value. What if I sweeten the deal? What if I put

Speaker 1: up $12 to your 10? You only stand to lose 10, you stand to gain

Speaker 0: 12.

Speaker 3: How does that sound? I still wouldn't bet. I feel like I'm better off just leaving it as it is.

Speaker 1: I'm gonna offer you $15. You only have to put up 10, I'm putting up

Speaker 0: 15.

Speaker 2: No. I'm offering you an extra

Speaker 0: $5.

Speaker 2: Why not?

Speaker 3: You're not giving my $10 away.

Speaker 1: What about 20? That's as high as I'm going today. $20, That is the top. It's 2 to 1.

Speaker 3: I just don't like taking that much risk

Speaker 1: You don't like risking 10 bucks. Sure

Speaker 3: I am

Speaker 2: but why don't you value my

Speaker 0: $20?

Speaker 1: Which you got a 50% chance of right here if you took if you accept the bet

Speaker 3: I don't know. I can't tell you. It's not like a... I don't know what the logical reason is for why I want that. I don't know.

I can't really... I just feel it's not right.

Speaker 2: Now this doesn't make sense. I've offered people up to $20 and they're still refusing to take the bet. The bet is objectively in their favor. I mean, a 50% chance of winning 20, plus a 50% chance of losing 10, still gives the bet an overall value of

Speaker 0: $5. Why is it that you won't go for this bet?

Speaker 3: I don't know, because I don't want to lose $10 just because of that easily.

Speaker 2: I know but you could win $20 think about the gain.

Speaker 3: I don't know I'm thinking more about what I lose than what I win I think.

Speaker 2: I think that's exactly the point because we feel losses more than we feel gains There's an asymmetry in the way people perceive gains and losses losses are felt much more intensely in fact Psychologically most people weight a loss around twice as heavily as a gain, But this varies from person to person.

Speaker 1: What if I go to

Speaker 0: $30?

Speaker 3: I said even if you had $50 I would still feel the same way.

Speaker 0: $50

Speaker 3: to $10 that would be a reasonable...

Speaker 2: That's when you would say yes? Possibly yes.

Speaker 3: You were gonna have to give me like a hundred, but I lost 10.

Speaker 2: This is known as loss aversion. To avoid risking a loss, people will pass up even very favorable bets. But is there a way to overcome our over sensitivity to losses?

Speaker 1: Let me ask you this.

Speaker 2: What if I offered to

Speaker 1: do this 10 times in a row? Same deal, $20 for your 10, flip in this coin.

Speaker 3: But then I'd be losing $10 each time, wouldn't I?

Speaker 1: You might be. You'd be risking $10 each time, but you know this is 50-50, and you know that I'm giving you 10 chances. Is that a better deal? To do it repeatedly?

Speaker 3: I don't think so.

Speaker 1: What about a hundred times? I don't think so. If it doesn't get better?

Speaker 3: No. If we played enough and I had enough, you know, of a stake of 10 dollars, then eventually, yes, I would make more money. Yes.

Speaker 1: Why does repeating the same bet change it?

Speaker 3: I don't think there's a rational thought behind it. It's just a feeling that 1 gets when presented with the opportunity I don't know.

Speaker 2: I think there is a rational reason behind it. Is it?

Speaker 1: Yeah Because the coin is gonna be

Speaker 0: 50-50.

Speaker 1: You don't know in 1 toss. You're only gonna get 1 outcome But in a hundred tosses, you know that it's gonna be somewhere between like 45 and 55 times it's gonna go your way, 45 to 50 times, 55 times it's gonna go my way, right? The point is, every time it goes your way, you win twice as much as you lose when it goes my way. So the point is, doing it a hundred times, you're basically guaranteed to win money. No, no, no.

It's not more chances of winning. It is you are guaranteed to win money.

Speaker 2: In fact, the expected value of a hundred of these bets is a win of

Speaker 0: $500,

Speaker 2: and there's only a 1 in 2, 300 chance of losing any money at all. So even if you weight losses twice as much as gains, 100 bets is indisputably favorable. So here's the thing. How do you accept 100 of these bets if you won't first accept 1 of those bets? This experiment is not about gambling.

It's not to encourage you to go to the casino where the odds are definitely stacked against you. Instead, it is a metaphor for all the little risks and opportunities that come our way in our lives. I mean, if you view each 1 as an independent event, you will often say no to even very good bets because you're afraid of the loss. So if instead you can see each little bet as 1 of a series of bets, then you realize that if you take that bet every time, you may win and you may lose, but overall, on the aggregate, you will come out ahead.

Speaker 1: Heads. Heads it is. He's just won himself 12 bucks. Woohoo!

Speaker 3: Tails.

Speaker 1: The 10 bucks is yours, sir.

Speaker 3: Thank you, sir. Heads.

Speaker 1: Thank you very much. The man has won 20 bucks.

Speaker 0: See, it

Speaker 1: pays to take the risk.

Speaker 2: Yay! Yes!

Speaker 1: This is unbelievable. My stroke of luck today has been terrible. Everyone's 1 off me so far. I'm funding myself. That's honestly my money.

Really? Yeah. This video is in fact a bit of a risk for me. Because I'm giving out all this money and it's only going to make money on YouTube if like half a million people see it. So if you like this video, then you should share it with your friends, so that this actually turns out to be a positive bet for me.

Okay, I'll do that. Yeah, share it with your friends. It's Veritasium. It's the name of their website. Veritasium.

Veritasium.

Speaker 2: So would you take this one-off bet? Let me know in the comments below and tell me how much money I would have to put up in order for you to risk your $10. Now this video was inspired by the book Thinking Fast and Slow by Daniel Kahneman, which I've recommended before because it's awesome and it also inspired me to make these cool videos, so check them out if you haven't already. But since I've recommended this book before, I'm going to recommend something different today, my friend Phil Plait's book Bad Astronomy, which is all about misconceptions and misuses of astronomy from astrology through to the moon landing hoaxes. It is an awesome book, so you should definitely check it out.

And in fact, you can download it for free by going to audible.com slash veritasium, or you can pick any other book of your choosing for a 1 month free trial. Audible is a great audio book website with over

Speaker 0: 150, 000

Speaker 2: titles in all areas of literature, including fiction, nonfiction, and periodicals. So I really wanna thank Audible for supporting me, and I wanna thank you for watching.

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Would You Take This Bet?