In my Investing class yesterday I learned some interesting stuff about investor psychology and I wanted to share just a small section of it with you today. We’ll start things off first with two scenarios, so I can do a little case study of my own (and because they’re just fun!).

Let’s take a look at the first scenario:

Now let’s take a look at the second scenario:

What were your answers? When my professor polled our class I chose “A” for the first scenario and “B” for the second scenario. It turns out that a large majority of people think this way because for the first scenario my class voted 18 times for “A” and 8 times for B while for the second scenario my class voted 10 times for “A” and 16 times for “B.”

Based on previous research 85% of the people who are presented with the first scenario choose “A” and about 70% of the people who are presented with the second scenario choose “B.”

Now if you look closely at the questions you’ll see that the two scenarios have identical end results, they are just presented differently. In either scenario you’ll end up with $1,500 if you pick option “A” and you will have a 50-50 chance to either end up with $1,000 or $2,000 if you pick option “B.”

Based on those facts you should pick the same option in both scenarios, but most people don’t – most people pick “A” and then “B”, respectively.

Interesting isn’t it?