Possibility Effect in Decision Making

Decision Trap: Possibility Effect in decision making

Description: I am in process of getting a top up on my existing loan for my education for exchange. Currently not many banks give a top up on existing Edu loan. One bank did agree, but asked me allow them to take over the loan from the other bank and to pay a 1% processing charge, which comes to about Rs. 20000 and 13.75% interest rate which was 1.25% above the existing rate. I talked to the manager and told the interest rate and processing fee is very high compared to industry standard. He said he will make adjustment when I come to sign the agreement. When we did turn up to sign the agreement he said his HQ has not approved the request and said this is the best offer he could give. Before I came into sign, he kept pressurizing and reminding me about the bad position I was in by asking me for additional documents proofs etc. However, being let down I decided to play the game and told him that I have got an alternate fund arranged and there is only a low probability that I may take this loan and that too if he give some good discount. The next day I got a positive response from him saying that the processing fee had been lowered to Rs. 5000 and interest rate back to 12.5%.

Analysis:

Since the probability of loan being taken by me was very low. People become risk seeking when there is a very small probability of making a big win. Small probabilities feel a lot bigger than they really are. This would have cajoled him to make the concession for me.

How

SHOULD

you

make

decisions?

• For

low-­‐probability

posi:ve

outcomes: