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Understanding Kahneman's Fourfold Pattern: Over and Underweighting of Gains and Losses

Explore Kahneman's Fourfold Pattern from an innovation perspective, focusing on the concept of over and underweighting gains and losses. Discover how high and low probability events are perceived by the brain, influencing decision-making processes. Gain insights into the Rational Utility Line and the Irrational Utility Curve with real-life examples.

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Understanding Kahneman's Fourfold Pattern: Over and Underweighting of Gains and Losses

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  1. From an innovation perspective “Kahneman’s “Fourfold pattern” Over- and underweighting Gains Gains Losses Losses High probability High probability the Rational Utility line Low probability. Unlikely events are considerably overweighted by your right brain. Examples: Chance to win €1 million in a lottery is << 1%, still you take a decision to buy a ticket Risk that Your house may burn down is <<1%, still you take a decision to buy a fire insurance Gain of certainty,loss of some money! Gain of hope, loss of much money! High probability Likely events are even more underweighted by your right brain Examples: Chance to win in a court case on €1 million is >>95%, still you agree to settle at €0.8 million Risk that You are about to get bankrupt on the casino is very high. Still You take a large loan from the mafia and bet all on number Zero….. Low probability Gain of certainty, loss of some money! Gain of hope, loss of some money! Low probability the Irrational Utility curve

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