Think Fast and You’ll Lose Money Quickly (A Behavioral Economics Explanation of Irrational Gambling)

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I have just given you $78. (I’m a generous guy.) Now I’m giving you a choice: you can enter a lottery where you have a 75% chance of losing that $78 and a 25% of keeping it, or you can hold on to $20 and avoid the lottery all together. Quick—tell me what you would choose!

Faced with such a gamble, there’s no right or wrong choice. If you want a sure $20, you’ll avoid the gamble. But if you want a shot at going home with $78, you’ll take the risk. Neither of these choices, on their own, is irrational.

But behavioral economists have identified a strange type of irrationality that influences people’s reactions to these kinds of gambles, and a recent study shows that the faster people think, the more susceptible they are to that irrationality.

I’m referring to the irrational way that people’s decisions are influenced by whether their choices are framed as losses or gains.

(To read the rest of this article, please visit Forbes.)

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