Researchers have found a link between attitudes towards long shot financial risks and a specific gene. We tend to like paying a small price for a long shot at a big gain such as in a lottery. At the same time, we tend to prefer paying a small price to avoid taking a chance on a big loss, which explains insurance. The researchers found that how much we like going for big gains and avoiding big losses is linked to a gene called monoamine oxidase A (MAOA).
It turns out that those with a more active version of this gene are more likely to enjoy lotteries and less likely to want insurance than those with the less active version of the gene. To overstate the results, we have two kinds of people:
1. Long shot gamblers who aren’t worried that their houses will burn down.
2. Non-gamblers who buy the $75 extended warranty on a $300 television.
An interesting question is whether many people are able to overcome their perceptions and emotions to make rational decisions. I see this as similar to the perception tricks where you’re asked which line is longer. Your brain tells you that one line looks longer, but a ruler tells you that they are both the same length. We accept that they are the same length, but one continues to look longer anyway.
For some reason almost everyone comes to the correct conclusion about the line lengths, but fewer people seem about to accept rational analyses of lotteries and insurance. In these cases, emotions and perceptions often prevail.
Thanks to a friend who pointed me to this research, but probably prefers not to be named.