Tuesday, November 15, 2016

Prospect theory, on why take a risk on Trump instead of going for sure-thing Hillary

Christopher Heintz has a post at Cognition & Culture that speaks to this: Does Prospect Theory explain Trump and Brexit votes? So:

Prospect Theory is a major theory in the field of behavioral economics. It explains why and when people are willing or reluctant to take risks. In many cases, people prefer not to take risk. For instance, most people prefer winning a sure $50 rather than taking a risky bet in which they can toss a coin and either win $100 or nothing. But in some cases, people prefer risky options. They do so when they feel that they have lost something.

So, it's a matter of how the situation is framed. Trump framed the situation in a way that made a class of voters willing to take a risk, hoping for a big if unlikely win, on him rather than go for sure-thing Hillary, with a high certainty of continuing the status quo:

If you perceive that you or your country has been losing lately, then you’re likely to be risk seeking. If you do not have that perception, then you’re likely to be risk averse. Many of the explanations for the Brexit and Trump votes that we recently read in the news emphasized how frustrated citizens were with their economic situation, and the effect of fear mongering discourses and appeal to lost grandeur. Frustration with the economic situation is directly caused by the Great Recession and the growth of inequalities. Many perceive their current economic and social situation as one of loss domain in the sense that it is much worse than what it should normally be. The political discourses of the Trump and Brexit advocates have framed the stakes in terms of losses rather than gains. The slogans “Make America great again” and “Take back control” clearly refer to the lost grandeur of the past.


In effect, he performed the old gestalt switch: "You see an old crone? Here, look at her my way. See, she's a beautiful young woman. Vote for me! You see a rabbit? No, it's a duck. I'm going to cook you the most wonderful Duck à l'Orange. It'll be fantastic! Vote for me!"


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