On Prospect Theory

Economic Ills Such as Gambling

Wednesday, March 11, 2009

In his book, The Medici Effect, Frans Johansson quoted a research study on prospect theory which “suggests that it is not so much that we hate uncertainty, but rather that we fear losing.” This theory suggests as well that “it is not that easy to see how things in our life could instantly get better- but it is easy to see how they could quickly get far worse” (page 174).

Perhaps, this must be the reason why former President Bill Clinton advised President Barack Obama to be optimistic. Mr. Obama’s $787 billion economic stimulus plan has been signed into law and there is no reason for him to tarry in somber mode. Instead of repeating the most bleak of tones, that America's economic ills could last years, Obama could have used the stimulus law in spurring hope for America and the world.

On the other hand, the prospect theory gives light to the malady of our society such as gambling. Gambling has been ingrained into the Filipino psyche. The recent draw of Philippine lotto with more than three hundred million Philippine Pesos at stake has stimulated without let-up the fantasy of millions of Filipinos. Bettors patiently lined up in lotto outlets in almost all nooks and corners of the Archipelago just to chase the chance of becoming millionaires. Since losing is more vivid than gain and is more painful, so we fear it. Prospect theory gives the reason why we are willing to gamble to avoid certain loss such as money.

Rev. Dr. Sergio A. Rojo, Jr.


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