Cognitive psychology, which deconstructs the intricacies of human thought processes, often uses money as a key experimental material. This field delves into the functioning of thoughts and provides insights into understanding the causes behind successes and failures in daily life. One of the most representative examples of micro-psychology, this discipline breaks down cause-and-effect relationships for detailed analysis, offering insights into decision-making. Cognitive psychologists frequently employ money in experiments due to its role as a precise unit for human value judgments.
Choosing Between Immediate Small Loss and Uncertain Large Loss:
A well-known example from cognitive psychology that examines human judgment and decision-making involves presenting two options to participants:
1. Option 1: A certain loss of 50,000 KRW (Korean won).
2. Option 2: A 25% chance of losing 200,000 KRW and a 75% chance of not losing anything.
While individual responses vary, about 80% of participants tend to choose Option 2. This phenomenon is explained by people's inclination to avoid certain losses, even if it involves taking a more adventurous path with Option 2. This aligns with the core concept of "prospect theory," which earned cognitive psychologist Daniel Kahneman the Nobel Memorial Prize in Economic Sciences in 2002.
Manipulating Perceptions:
However, this preference for Option 2, or the aversion to certain losses, isn't consistent across all situations. Manipulating the presentation order of options can influence decisions. For instance, showing Option 2 first and allowing time for participants to imagine the situation can make them lean toward Option A, the certain loss. This phenomenon is exploited by insurance companies, where individuals willingly accept certain small losses to avert larger, uncertain ones.
The Power of Imagination and Anticipation:
The process of imagining a scenario can significantly influence decision-making. Imagining a 200,000 KRW loss can prompt a desire to avoid the situation, leading to the acceptance of a certain small loss. The value of objective items remains, but the extent of contemplation can change subjective value considerably. This emphasizes the fluidity of human judgments.
The Importance of Psychological Flexibility:
Decisions don't follow a linear pattern in human cognition. Rather, they are shaped by the extent of imagination and contemplation. People often underestimate the influence of these factors when striving for rational decisions. This dynamic underscores the role of psychological flexibility in evaluating choices and understanding the psychology behind them.
Persuasion and Imagination:
Persuasion is not solely based on logic and reason. The process of offering time for contemplation, which allows both parties to empathize with each other's emotions, contributes to genuine persuasion. This concept holds true even in the context of financial decisions, such as assessing the value of money.
Conclusion:
In the world of decision-making, the choice between certain immediate losses and uncertain future losses is influenced by the extent of imagination. This psychological phenomenon highlights the malleability of human judgment and provides valuable insights into the way decisions are made, underscoring the role of contemplation in shaping preferences.