Cutting One’s Losses Comes Hard

( – promoted by lowkell)

There is apparently a human aversion to accepting the certainty of a loss, and that aversion helps illuminate the behavior of the Republicans in their present quandary.

That’s one of the things I’ve learned from a quite brilliant book I’m reading. Titled Thinking, Fast and Slow, it is written by Daniel Kahneman, an Israeli-American psychologist, who won the Nobel Prize for Economics for work he’s done on the non-rational aspects of human decision-making.

One piece of this book deals with how, contrary to much previous thinking of economists, humans do not make their decisions in a straight-forward rational fashion based on calculations of probabilities times magnitudes of possible gains and losses. People place an inordinately high weight on small possibilities, and they place a great value on the move from highly probable to certain. Add to that the fact that people feel more painful impact from losses than they feel pleasure from gains of the same magnitude, and one ends up with a two-by-two matrix that is relevant to the explanation of the Republicans’ recklessness in the current crisis. (The Republicans also have some other craziness problems, but I’m setting that aside for now.)

In this two-by-two matrix, there is either a high or a low probability of a gain or a loss of either a large or a small magnitude. In each of the four cases, people are given the option of taking a deal that gives certainty of a smaller gain/loss, or taking their chances of getting the whole thing.

What studies find is that people will take their chances on getting a big gain with a small probability (like buying a lottery ticket), and they’ll also gamble when it comes to the possibility a large loss for which there is a large probability. When there’s a large probability for a large gain, they’ll take a smaller gain to make it a sure thing. (People will take $900,000 for certain, for example, in preference to a 95% chance of winning a million.)

The quadrant the Republicans are in is the one where there’s a very high probability of a very large loss. When people are in that situation, will they accept a somewhat smaller loss for sure, or will they take their chances that somehow they can come out of the situation unscathed?

The answer is: people will generally reject the deal, and take their chances.

About this quadrant of the two-by-two matrix, Kahneman says (p. 318-9):

“Many unfortunate human situations unfold [in this quadrant]. This is where people who face very bad options take desperate gambles, accepting a high probability of making things worse in exchange for a small hope of avoiding a large loss. Risk taking of this kind often turns manageable failures into disasters. The thought of accepting the large sure loss is too painful, and the hope of relief too enticing, to make the sensible decision that it is time to cut one’s losses… Because defeat is so difficult to accept, the losing side in wars often fights long past the point at which the victory of the other side is certain, and only a matter of time.”

If that tendency to resist cutting one’s losses is true of humankind generally, we should note that it is especially true for these Republicans. Recent history has shown that more than any major American political group in a century and a half, these people seem virtually incapable of accepting anything but their dominance over others. That’s one of the ways in which we can see that, in the words of the series I’ve posted here “The Spirit That Drove Us to Civil War is Back”: neither the South in the election of 1860, nor the Republicans in the election of 2008 (or 2012, for that matter), could accept that, for a time, the constitutional election process had placed them in a subordinate role.

(This insistence on domination, this terror of the subordinate role, is one of the clues that leads into that heart of darkness that is at the core of the spirit of brokenness that drives today’s Republican Party.)

Refusal to accept a loss, any loss, leads to still more disastrous outcomes, as is shown by some poll results posted yesterday:

“Americans blamed Republicans over President Barack Obama for the shutdown by a margin of 22 percentage points, with 53 percent saying the GOP deserved more blame, and 31 percent saying Obama did. Approval ratings for the Republican Party and the tea party were at 24 percent and 21 percent respectively — both record lows as measured by NBC/WSJ.”

And how far will the Republican refusal to cut losses continue remains at this writing an open question.