# An undead lesson in prospect theory

So, an explanation for that quick zombie survey

The two questions were designed to test whether people have consistent attitudes about risk.  Risk-averse decision-makers prefer the safe option over a lottery with more risk, even if the expected value of the lottery is somewhat higher.  Risk-neutral decision-makers are indifferent between a sure bet and a lottery whose expected value is equivalent to that safe bet.  Risk-loving decision-makers prefer the risky option, even if the expected value of the safe bet is higher.  Risk averse decision-makers aren’t necessarily better or worse than risk-neutral or risk-loving decision-makers, but most political scientists assume that individual attitudes about risk are consistent from choice to choice.

The funny thing is, however, that many people aren’t consistent from choice to choice.  Prospect theory observes that people will be risk-averse when they believe that they are gaining relative to the status quo, and risk-loving when they believe that they are losing relative to the status quo.  This means that the exact same choice can lead to different preferences when framed as a gain or a loss.

For a concrete example, consider my two survey questions.  One question:

You are in a fight for your life with zombies. You have acquired enough resources to launch an attack on the living dead. You can launch this attack in one of two ways. Which strategy do you prefer?

A.  An attack that leads to the certain destruction of 500 zombies;

B.  An attack that has a 50 percent chance of destroying 1000 zombies and a 50 percent chance of destroying only 100 zombies.

1,238 people responded to this survey question, and 61.3% preferred option A — even though the expected value of option B was (.5*100 + .5*1000 =) 550 zombies killed.  When operating in a world of gains, a majority preferred the risk-averse option.

All well and good, but consider the other question in the survey:

You are in a fight for your life with zombies. Your resources are dwindling, and you must choose between some unattractive escape options. Which option do you prefer?

A.  A retreat that leads to a certain increase of 500 zombies

B.  A retreat that has a 50 percent chance of creating only 100 new zombies and a 50 percent chance of creating 1000 zombies.

Now, both options are bad ones, but option A is the less bad one:  only 500 more zombies versus an expected value of .5*100 + .5*1000 = 550 more zombies created.  Nevertheless, 57.5% of the 1238 respondents preferred option B.  When operating in a world of losses against the living dead, a healthy majority of the respondents was willing to take a risk they weren’t willing to take when they were operating in a world of gains.

Normally, these preferences are revealed through questions about money — would you prefer a sure gain of \$500 vs. a lottery, etc.  My survey findings suggests that prospect theory also applies to counter-zombie policies as well.  And yes, the findings are going into the book

Question to readers:  which current foreign policies do you think can be explained by a prospect theory perspective?