Decisions in the face of uncertainty

Studying Students’ Reaction to Chance

An interesting article on a contest held at University of Virginia’s Darden School of Business. The contest split 269 students into two groups:

1. The first chooses one of two unmarked briefcases. One has a check for $18,750, and the other has nothing. Before opening the case, they are offered a chance to receive a fixed amount of cash in its place. It’s their choice.

2. The second group is given the cash upfront, and then offered the chance to buy one of the briefcases. For the student mentioned in the article, he was given $3,000. He could have walked away with the $3k, or bought the right to choose one of the cases.

The research showed that “buyers” (the second group) were more likely to keep the cash. Of course that isn’t rational, because the expected value of the case selection is $9,375 (a 50% chance of getting the $18,750 check).

The students admitted the decision is easier on paper, and more difficult when you have a handful of cash.

Overall, I’m glad Darden is doing research like this and teaching the students about decision making in the face of uncertainty. More schools should be doing the same.

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