I want you to consider this bet. Here’s ten dollars. This could be yours if I flip
this coin in the air, you guys call it in the air. If you’re right I give you the
ten dollars. If you’re wrong you give me ten dollars. I saw that coming. That’s not
a good bet for me. I guess in principle I don’t agree with the idea of betting. Okay, okay.
But what if we just use this as like an allegory for life. You know, it’s not really about
money and betting on a coin, it’s more about our approach to risk. Okay, and my approach
to risk is obviously a lot less than yours. You wouldn’t do this bet? No, no. No, I
don’t have ten bucks. My gut says don’t bet. Why is that? Because at the moment I
have ten dollars and later I might not. So people are passing up the opportunity to win
ten dollars of my money. But it kind of makes sense because they have to risk ten dollars
of their money and it’s a 50/50 chance, so really the bet has zero value. What if
I sweeten the deal? What if I put up twelve dollars to your ten? You only stand to lose
ten. You stand to gain twelve. How’s that sound? I wouldn’t. I still wouldn’t bet.
I feel like I’m better off just leaving it as it is. I’ll offer you 15 dollars.
You only have to put up 10. I’m putting up 15. No. I’m offering you an extra five
dollars. Why not? I’m not giving my 10 dollars away. What about 20? That’s as high as I’m
going today. Twenty dollars that is the top. It’s two to one. I just don’t like taking
that much risk. You don’t like risking ten bucks? Sure. I’m valuing my 10 dollars,
I am. But why don’t you value my 20 dollars which you’ve got a 50 percent chance of right
here if you accept the bet. I don’t know. I can’t tell you. It’s not like a, I don’t
know what the logical reason is for why I want that. I don’t know. I can’t be, I
just feel it’s not right. Now this does’t make sense. I’ve offered people up to 20
dollars and they’re still refusing to take the bet. Well the bet is objectively in their
favor. I mean a 50% of winning 20 plus a 50% chance of losing 10 still gives the bet an
overall value of 5 dollars. Why is it that you won’t go for this bet? I don’t know.
Because I don’t want to lose 10 dollars just because of that easily. I know but you
could win twenty dollars. Think about the gain. Well, I don’t know. I’m thinking
more about what I lose than what I win. I think. I think that’s exactly the point.
Because we feel losses more than we feel gains. There’s an asymmetry in the way people perceive
gains and losses. Losses are felt much more intensely. In fact psychology most people
weight a loss around twice as heavily as a gain. But this varies from person to person.
What if I go to 30 dollars? I said, even if you had 50 I would still feel the same way.
Fifty dollars to 10 dollars that would be a reasonable. That’s when you would say
yes? Possibly, yes. You’re gonna have to give me like a hundred. But I lose ten. This
is known as loss aversion. To avoid risking a loss, people will pass up even very favorable
bets. But is there a way to overcome our oversensitivity to losses? Let me ask you this. What if I
offered to do this ten times in a row? Same deal, 20 dollars for your ten, flipping this
coin? But then I would be losing 10 dollars each time wouldn’t I? You might be, you’d
be risking 10 dollars each time, but you know that this is 50/50 and you know that I’m
giving you ten chances. Is that a better deal, to do it repeatedly? I don’t think so. What
about a hundred times? I don’t think so. It doesn’t get better? No. If we played
enough and I had enough of you know of a stake of 10 dollars then eventually yes I would
make more money yes. So why does repeating the same bet change it? I don’t think there’s
a rational thought behind it, it’s just a feeling that one gets when presented with
the opportunity. I don’t know. I think there is a rational reason behind it. Is it? Yeah.
Because the coin is going to be 50/50. You don’t know on one toss, you’re only going
to get one outcome. But in a hundred tosses, you know that it’s going to be somewhere
between like 45 and 55 times it’s going to go your way, 45 to 55 times it’s going
to go my way. Right? The point is, every time it goes your way, you win twice as much as
you lose when it goes my way. So the point is, doing it a hundred times you’re basically
guaranteed to win money. More chances. No no, it’s not more chances of winning, it
is you are guaranteed to win money. In fact, the expected value of a hundred of these bets
is a win of 500 dollars. And there’s only a one in 2300 chance of losing any money at
all. So even if you weight losses twice as much as gains, a hundred bets is indisputably
favorable. So here’s the thing, how do you accept a hundred of these bets if you won’t
first accept one of those bets? This experiment is not about gambling. It’s not to encourage
you to go to the casino where the odds are definitely stacked against you. Instead, it
is a metaphor for all the little risks and opportunities that come our way in our lives.
I mean if you view each one as an independent event, you will often say no to even very
good bets because you’re afraid of the loss. So if instead you can see each little bet
as one of a series of bets, then you realize that if you take that bet every time you may
win and you may lose, but overall on the aggregate, you will come out ahead. Heads. Heads it is.
He’s just won himself 12 bucks. Tails. The ten bucks is your sir. Heads. Thank you very
much. The man has won 20 bucks. See, it pays to take the risk. Yay! Yes! This is unbelievable.
My stroke of luck today has been terrible. Every has won off me so far. Who’s funding
you? I’m funding myself. That’s honestly my money. Really? Yeah. This video is in fact
a bit of a risk for me. Because I’m giving out all this money and it’s only going to
make money on YouTube if like half a million people see it. So if you like this video,
then you should share it with your friends so that this actually turns out to be a positive
bet for me. Okay I’ll do that. Yeah. Share it with your friends. It’s Veritasium. That’s
the name of the website. Veritasium. So would you take this one-off bet? Let me know in
the comments below and tell me know how much money I would have to put up for you to risk
your ten dollars. Now this video was inspired by the book Thinking Fast and Slow by Daniel
Kahneman which I’ve recommended before because it’s awesome and it also inspired me to
make these cool videos so check them out if you haven’t already. But since I’ve recommended
this book before I’m going to recommend something different today. My friend Phil
Plait’s book Bad Astronomy which is all about misconceptions and misuses of astronomy
from astrology through to the moon landing hoaxes. It is an awesome book so you should
definitely check it out and in fact you can download it for free by going to audible.com/Veritasium.
Or you can pick any other book of your choosing for a one month free trial. Audible is a great
audiobook website with over 150,000 titles in all areas of literature including fiction,
nonfiction and periodicals. So I really want to thank audible for supporting me and I want
to thank you for watching.