Series 2, Episode 12: Probability Neglect
Welcome back to the bitesize behaviour podcast and today we explore a behaviour that defies all odds - literally - and makes see the world around us in a way that isn’t reflective of the world around us. I don’t even think that makes sense to me! Of course I’m talking about probability neglect, or neglecting probability.. or put even more simplistically, ignoring the chance of something happening when we are making a decision.
There is a simple truth that underpins this behaviour and that is that as humans we are really bad at assessing risks. We are generally so bad at this, that we assume that common activities we engage in - like driving a car - are safer and less risky than less uncommon activities we engage in - like flying in a plane.
ASK YOURSELF THIS QUESTION...
Let’s start there and ask yourself that question.
How do you feel about driving a car compared to flying in a plane?
Driving a car, or being in a car, is pretty much an everyday event, and is something we think very little about. However, since flying is uncommon relative to driving, most of us have, to varying degrees, levels of fear and worry whilst flying that we don’t experience when we drive. But of course, the reality is that driving is much more dangerous than flying.
From a probability viewpoint - there is a 1 in 112 chance of us dying in a car crash, compared to a 1 in 96,566 chance of dying in a plane crash - please don’t say I don’t bring joy to these podcasts - and yet we ignore or overplay the chances of incidents like this, and this makes us feel that driving is much safer than flying.
Now, there has been numerous research studies into probability neglect.
GETTING OUT OF BEING ELECTROCUTED
In one really interesting study, researchers wired participants up to a machine and asked them to press a button. They were told two things. That the button was wired to randomly give them an electric shock and there was a 99% chance that when this button was pressed, they would get an electric shock. Nothing major, but still a small electric shock would be felt.
They were then asked how much money they would pay to avoid being electrocuted. The average answer to that question was $10. So in order to avoid being subject to the research, with a 99% chance they would receive an electric shock, participants were willing to pay $10 to get out of it.
Enter group number two. Now, group two were told the same thing as the first group except that the chance of them receiving an electric shock was only 1%. In other words, only 1 person in every 100 would receive the shock. Completely different odds to the first group where 99 people out of 100 would be electrocuted. Now, you’d think, I guess, that because the odds are almost non-existent - only 1% chance - people would pay almost nothing. Why pay out money to avoid something when the chance of it actually happening is really slim. Well, the average price they were willing to pay was $7, which in the scheme of things, is really small monetary difference for a significant difference in probability. And the reason this particular research kind of plays out like this, is because an electric shock is a very real. It’s an emotional thing. It’s visceral. We feel it, or if we’ve felt it before, we know it’s not a nice feeling, so we want to avoid it, even when the chance of it happening to us is really rather small. We hear electric shock and want to avoid it. Simple as that.
And probability neglect creeps into our brains and impacts the way we see the world and how we process information and reach conclusions. So let’s do a little test to show you what I mean. I’m going to describe something to you, and you then ask you a question.
OK. There is a mountain race about to start - a race to the top. Some people are going to climb, some are going to run. There are 750 climbers and 125 runners in the competition. You get chatting to a competitor called John. He has an athletic build, reveals he has high stamina levels, and that he runs everyday. He also completed the last two London marathons. Now the question.
Based on what I’ve just said, is John more likely to be a climber or a runner?
Just think about that for a second and get an answer in your head.
OK - now it only takes some simple maths to reveals the probability of each, and we know that there is a significantly higher chance of the person I’ve just described … is a climber…after all, there are 750 climbers and only 125 runners. And yet, when people answer this a huge amount of people ignore the numbers or the probability, the chance that this person is a climber, and instead they focus on the characteristics mentioned - athletic build, high stamina, marathon runner, and tell us that they believe, based on that description and the information provided, that John is a runner. And one of the reasons that people’s brains get messed up with this question is because we also have a tendency to confuse probability with possibility.
Possibility is a simple yes/no question. So, yes, it is possible that John could be a runner or a climber. But, the probability - the likelihood or chance of him being a runner or a climber, can be calculated using maths.
So imagine I rolled five dice. Is there a possibility that I can roll 5 number 6s? Of course there is! However, the probability of me doing this - the chance that I can roll - in one roll - 5 sixes, is slim. In fact, it’s 1 chance in every 625 rolls.
And when it comes to financial decisions - or investing your money - is there a possibility of losing money - of course there is. But that’s not the question you should be asking. You should seek to understand the chance - the probability of losing money, and potentially how much. This conversation is part of a risk taking discussion that any good financial adviser would explore with you in detail.
That is why understanding and getting to grips with probability is so important. It can have an impact on many decisions we make, not least your money decisions. It can make us think we’re safe when we’re in danger, and in danger when we’re safe. It can stop us doing something that could be valuable and rewarding or make us do things where we end up saying “I’ll never do that again!"
Understanding the real chance - the mathematical chance - the probability of things happening is super important and can free you from living a life of ‘what if’ - which in turn may allow you to live a more fulfilled life.
So - that’s it for today. In the next episode of Bitesize Behaviours we’ll look at a behaviour that makes us do whatever everyone else is doing, even if you don’t necessarily want to do it! We be talking about Herding.
See you next time on bitesize behaviour.