The father of behavioural economics Daniel Kahneman talks to VIKRAM KHANNA about cognitive illusions, investor irrationality and measures of well-being.
A bat and a ball together cost $1.10. The bat costs $1 more than the ball. How much does the ball cost?
Did you say 10 cents?
More than half of a Princeton University economics class gave the same answer (as did most of my friends), and it is wrong.
'If I offer you a deal: I toss a coin and if it's heads, you will win $200, but if it's tails you will lose $100. Will you take the bet?
'The majority of people say no. They don't consider it attractive. They weigh pleasure against pain, and for most people, the pain of losing $100 outweighs the pleasure of winning $200. Losses are given a weight of more than 2:1 compared with gains. This is loss aversion.
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