Sermon Illustrations > Fear > Reward Vs. Risk

Reward Vs. Risk

Gary Belsky, Money, July, 1995

You've been given a free ticket to a football game. A snowstorm the night before makes the drive to the stadium risky. Would you go? Okay: same game, same snowstorm&md;except this time you paid $100 for the ticket. Now would you go? According to University of Chicago economist Richard Thaler, people are more likely to take a risk if they paid for the ticket. But, as Thaler points out, "The fact that you spent $100 shouldn't matter when you decide between the reward of seeing the game and the risk of getting killed." Two all-too human tendencies come into play here. the first is the "sunk-cost fallacy"&md;the idea that having paid for something, you had better not waste it, no matter what the consequences. The second is "loss aversion"&md;the fact that people place about twice as much significance on a loss as on a gain. In other words, they are twice as unhappy about losing $100 as they are pleased about making $100.