I recently added another Danny Kahneman page to the site and in that page is a link to a talk Dan Gilbert gave at SXSW 2006 entitled “How to do Precisely the Right Thing at all Possible Times”. Dan was only being a little bit facetious because right at the beginning of the talk he tells you how to do exactly that. “The happiness you can expect from anything you do is a function of two things: the odds of getting a gain, and; the value of that gain. You multiply these two things together and you know exactly how good your decision or action is going to be.” Sound familiar? Very similar to what NNT is saying (I’ve heard him talk about it in numerous talks, but this comes from his Long Now talk) when he says, “The telescope problem… what matters is not the probability, what matters is the event, so if I have a small probability of losing a million dollars, I don’t care about the probability I care how much I lose. You worry more if you have a small probability of being on a plane that crashes than if you have a small probability of not having an umbrella in the rain. So it’s not the probabilities that you care about, It’s the probability times the event, the magnitude of the event.” Dan is talking about the possible gain and NNT about loss, but the equation is the same, is it not?

Dan’s talk goes on to point out that because of how we’re wired we are actually pretty much clueless about determining the value of a gain that occurs in the future. So, while the equation is valid it’s not very useful because it’s basically impossible to know the extent to which we will value something that hasn’t happened- that isn’t happening right now! I suppose the same could be said for loss, and in fact Dan addresses this in his talk, pointing out that however grand the misfortune that befalls us, after about a year we’re back to our own personal happiness equilibrium.  I listen to this talk about once a month. In fact it’s what inspired my adventure into heuristics which lead to Danny Kahneman and NNT.
Check it out How to do Precisely the Right Thing at all Possible Times.