Risky Business

RISKY BUSINESS….Virginia Postrel has an interesting column in the New York Times today. At least, it’s interesting for people like me who are fascinated by research into how people evaluate risk and uncertainty. First, there’s a brief test:

  1. A bat and a ball cost $1.10 in total. The bat costs $1 more than the ball. How much does the ball cost?

  2. If it takes five machines five minutes to make five widgets, how long would it take 100 machines to make 100 widgets?

  3. In a lake, there is a patch of lily pads. Every day, the patch doubles in size. If it takes 48 days for the patch to cover the entire lake, how long would it take for the patch to cover half the lake?

What makes this interesting is that it’s not really a math/logic test. That is to say, it is a math/logic test, but Shane Frederick of MIT says it’s more than that. It’s an indicator of your tolerance for risk: high scorers tend to prefer risky gambles more than low scorers, even when the gambles aren’t especially favorable. On the other hand, there’s also this:

For instance, 80 percent of high-scoring men would pick a 15 percent chance of $1 million over a sure $500, compared with only 38 percent of high-scoring women, 40 percent of low-scoring men and 25 percent of low-scoring women.

Unless that’s a misprint, I just have to wonder what kind of moron would take $500 over a 15% chance of a million bucks? That’s crazy unless you’re dead broke and a goon with a baseball bat is coming after you with your kneecaps in his sights.

Anyway, read the whole thing. Interesting stuff. Quiz answers are at the end.