This is the Fourfold Pattern of Prospect Theory from Thinking, Fast and Slow.
Broyhill Asset Management explains what each quadrant represents.
- In the top left cell, people are willing to accept less than the expected value of a gamble to lock in a sure thing. We all know “something” is better than “nothing.”
- The possibility effect in the bottom left cell explains why lotteries are popular. Dangle a big enough Powerball number in front of people and ticket buyers will line up, almost indifferent to their odds of winning. A ticket comes with the right to dream.The bottom right cell is where insurance is bought. People are willing to pay much more than expected value for an insurance policy, to eliminate anxiety and purchase peace of mind.
- The bottom right cell is where insurance is bought. People are willing to pay much more than expected value for an insurance policy, to eliminate anxiety and purchase peace of mind.
- Many difficult situations develop in the top right cell, where people faced with bad options make reckless wagers. Risk taking in this instance can turn a manageable failure into a complete disaster, simply because the thought of taking a large loss is too painful to make the rational decision that it is time to move on. Instead, this is where many companies in structurally challenging industries burn precious assets in wasted attempts to catch up.
What I learned from reading Being Mortal is people with terminal illnesses and making end-of-life decisions are operating in the upper right quadrant. But they tend to think they are operating in the lower left quadrant.
They want to try every aggressive treatment or unapproved drug because of the possibility of a cure. Like all of us, they will overweight the odds. They may be thinking a 1% chance is really a 5 or 10% chance.
Or they may be overestimating how much more life these aggressive treatments may add. It may be only a few months to a year while the patient thinks it may add 5 or more.
By making decisions in the lower left quadrant they are ignoring the effect these aggressive treatments may have on their quality of life. If it extends your life by a year but if it is painful and you can’t continue doing what you love, is it worth it?
There is a reason many Doctors themselves don’t pursue aggressive treatments when faced with terminal illnesses. They know the odds. They know the effects. They focus on their quality of life over the quantity.
Being Mortal is in part a guide for Doctors to redirect patients’ decision-making from the lower-left quadrant to the upper-right quadrant. With a terminal illness, it is a series of tough decisions. Doctor, patient, and the patient’s family need to have open and honest dialogs about their options and decide on the least worst option. The option that doesn’t cause undue suffering, allows the patient to do what they love to do as much as possible, and – most importantly – it allows the patient to remain in control of their life’s story all the way to the end.
Thinking, Fast and Slow by Daniel Kahneman
Being Mortal by Dr. Atul Gawande