The findings of behavioural economics are often cast as the ways that we’re irrational. This allows us to laugh at the foolish things other people do and know that “since I’m rational, none of this applies to me.” But this isn’t true. Many of these biases are baked into all of us. Consider the tendency to heavily discount the future. To take a cookie now instead of two cookies in a year is to give up a 100% return. However, look at this from the point of view of our distant ancestors who lived on the edge of starvation. They couldn’t afford to plan too much for the future and possibly starve today. When people refuse a 50/50 coin flip to either lose $100 or gain $200, they are using a rule of thumb that appears to be baked into all of us to avoid a loss even at the expense of the possibility of a much larger gain. We seem to have many such rules of thumb baked into the automatic part of our brains. These rules of thumb have served us well throughout human evolution, but th...

We’ve long been told that we feel losses more than we feel gains; that losing $1000 will make us more unhappy than winning $1000 will make us happy. Many experiments point to the existence of loss aversion, although recent experimental results have caused skeptical researchers to question its existence or at least claim that loss aversion is more complex than we first thought. Nassim Taleb criticizes the ideas of risk aversion and loss aversion differently from the sceptical researchers. In his book, Skin in the Game , Taleb says “I believe that risk aversion does not exist: what we observe is, simply, a residual of ergodicity. People are, simply, trying to avoid financial suicide and take a certain attitude to tail risks.” Taleb also says “Rationality is the avoidance of systemic ruin.” He rejects the idea that we are loss averse; we are simply avoiding things that could lead to financial ruin, death, or other permanent loss. “In a strategy that entails [a possibility of] rui...