Sunday, July 28, 2013

Behavioral Economics: Why it is so Hard to Take a Hit on a 16

Everyone who plays blackjack knows you take a hit on a 16 if the dealer has a 7 or better showing. If  the dealer has a 6 or lower, you do not take a hit. It's strictly a matter of probabilities. With a 16 you are very likely going to lose and taking the hit lowers the probability only slightly. I think it is 3% less likely you will lose.

When you are at the table and the dealer shows a 7 and you have a 16 it is very hard emotionally to take the hit. Why? Probably because you are likely to lose no matter what but, if you take the hit, you have a sense of taking an active role in participating in your loss. If you do not take the hit, then you feel more passive. After all, you might think, I did not cause the loss.

Rationally you know that you should take the hit but what behavioral economics tells us is that people feel a greater sense of regret when they take an active step that turns out to be a mistake than when doing nothing turns out to be a mistake.  An example, is that someone feels worse if he or she buys a stock that goes down in value than if she or she declines to buy a stock that appreciates in value.

Casinos make a great deal of money on the irrationality of not taking the hit.

2 comments:

Hollie said...

Cool!

educationlenz said...

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