On January 19th, 2008 Daniel Tuohy (not verified) says:
I think the "loss aversion" explanation for the fact that a person would find the $100 "grand prize" preferable to the $150 "second prize" is a red herring. While the person is no doubt engaging in irrational behavior, I think there is a fairly obvious evolutionary answer.
Human beings satisfaction is not derived to any large extent from one's absolute position in life. Satisfaction is derived from relative wealth/comfort, either compared to others or compared to one's previous situation. The obvious evolutionary reason for this is that even if one is wealthy enough to be quite comfortable, he will be unlikely to attract a mate unless his wealth compares favorably with the rest of the tribe. If the whole tribe is well-off, and his wealth is only average, it does him no evolutionary good to be satisfied.
Although we live in such large populations now that it doesn't matter, the person who wins second prize is still presented with an immediate example of someone who has done much better. If this were a small tribe (of the type in which we evolved), I can see how it would be much better to gain some personal wealth that noone else is priviledged to rather than gaining slightly more wealth that is vastly inferior to that gained by one of your rivals.
Relative v. Absolute wealth
I think the "loss aversion" explanation for the fact that a person would find the $100 "grand prize" preferable to the $150 "second prize" is a red herring. While the person is no doubt engaging in irrational behavior, I think there is a fairly obvious evolutionary answer.
Human beings satisfaction is not derived to any large extent from one's absolute position in life. Satisfaction is derived from relative wealth/comfort, either compared to others or compared to one's previous situation. The obvious evolutionary reason for this is that even if one is wealthy enough to be quite comfortable, he will be unlikely to attract a mate unless his wealth compares favorably with the rest of the tribe. If the whole tribe is well-off, and his wealth is only average, it does him no evolutionary good to be satisfied.
Although we live in such large populations now that it doesn't matter, the person who wins second prize is still presented with an immediate example of someone who has done much better. If this were a small tribe (of the type in which we evolved), I can see how it would be much better to gain some personal wealth that noone else is priviledged to rather than gaining slightly more wealth that is vastly inferior to that gained by one of your rivals.