From
Overan and
innovation
underweighting
perspective
“Kahneman’s
“Fourfold
pattern”
Decision weight [%]
100
90
Gains
High
High probability
C. of a gain:
Low probability.
probability
You areare
inconsiderably
the
expansion
phase
of your
Unlikely events
Big
chance
to win
a lot
80
overweighted
by your
right
brain.
venture,
but
you
are
tight
on cash flow.
Fear
of
getting
disappointed
Examples:
Hence – just for safety – you sell your
RISKinAVERSE
A. Chance
to wininvoices
€1 million
delayed
to aafinancial institution
60
lotteryAccepting
is << 1%, stillunfavorable
you take
settlement
to 70-80 of their
value just to
get money
a decision to buyExample:
a ticket Court case
onYour
time.
Is that
B. Riskin
that
house
maythe right thing to do?
50
Low burn down is <<1%, still youA.
probability
take a decision
to buy
a fire to win a lot
Small
chance
40
insurance
70
Hoping for a great gain
RISK SEEKING
Low probability
a gain:
Rejecting
favorableofsettlement
30
Low
probability
20
10
0
0
10
You discoverExample:
something
really wild and
Lottery
crazy, that If it would succeed would be
disruptive to the whole industry. This is
really OK if you start to bet at low costs,
but you’d better be careful with the
evaluation factor if you want to succeed.
40
50
This IS 20
a lottery!30
Losses
High probability
D. of a loss:
Kahneman’s
up athe
Bigbook
risk takes
to lose
lotexample
where 47Hoping
% of entrepreneurs
in
to avoid loss
“doomed” ventures, i.e. an external
RISK SEEKING
auditor have told them they are sitting
Rejecting
favorable settlement
on “dead
ducks”…ignored
the advice to
Example:
Casino
evening
High
probability
stop what they
were
doing and instead
events
areB.
even
more
they Likely
increased
their
efforts!
But is this
underweighted by your right brain
not the essence
of having
entrepreneurs,
Small risk
to lose
a lot
Examples:
without
which
we
all
would
swim
Feartoofwin
large
loss
C. Chance
in a court
casein red
oceans only
pursuing
stuff?
on €1
million issure&boring
>>95%, still you
RISK AVERSE
agree
to settle at of
€0.8
million
Low
probability
asettlement
loss:
Accepting
unfavorable
D. Risk that You are about to get
You have started
yourInsurance
business and it
Example:
bankrupt
on the casino is very
works really
however,
you never
high.well,
Still You
take a large
loan
know what
the
future
will
bring
you
from the mafia and bet all on so
just in case
you sell
part of your business
number
Zero…..
to mitigate the effect of future losses – IF
they would occur.
60
70
80
90
Probability [%]
100