Loss Aversion: Time Is Money

Why students struggle with time management, and why tutors struggle to help them with it.

Which would you rather have, $900 right now or a 90% chance to get $1000?

If you’re like most people, you’ll take the $900 right now¹. Why take any risk when you can get most of the money with zero risk? And in any case, from an expected value perspective, the two propositions are the same: 90% of $1000 is $900. If you play this game many times, you’ll end up with roughly the same amount of money no matter what you choose each time. So let’s make it a little more extreme: 

Would you rather have $900 right now, or a 50% chance to make $2000? 

For most people, taking the 50% bet feels like you are “losing” $900. It feels better to just keep the $900 you’re certain to get. But you should really take your chances on the $2000. If you play the game many times, you’ll get an average of $1000.

This common, but suboptimal, decision is prompted by the same impulse that causes students to mismanage their time on tests: loss aversion. We hate to give up a sure thing, and we’ll pay to make the risk go away. Students crave zero-doubt-absolutely-correct answers on tests, and they’ll pay precious seconds to make their doubts disappear.

Let’s see this in action as a student answers an ACT Science question:

The question is asking about the relationship between an atom’s mass and its radius. Students will often go back to Student 4’s perspective and find this: “...the larger the atom that is bound to the As atom, the larger the bond angle.” They may also notice that when an element in Table 1 is associated with a larger angle, it also has a greater mass (based on the table in the question itself). 

For students who are not comfortable with these science passages, there’s one big problem…the passage says nothing about a radius. They can infer that the answer is A, but these students would like to see it directly. They want a sure thing, not a 90% likelihood.

But on this test, as I always tell students, you have to be comfortable being 90% sure. Yes, you may be wrong 10% of the time, but at least you’ll have a good chance at every question. If you spend an extra 45 seconds going back to find more information every time you feel any doubt, you’ll realize halfway through the section that you have no chance of finishing, panic, and race through the rest of the test. Disaster.

Here’s another facet of loss aversion:

Would you rather lose $900 for sure, or have a 90% chance to lose $1000?

From an expected value standpoint, the propositions are the same…but if you’re like me, you might feel like gambling! I don’t want to lock in a $900 loss. I’d much rather have a 10% chance of keeping my money. If you made the terms even less favorable – lose $800 for sure, or have a 90% chance to lose $1000 – I’d probably still take the gamble, even though I’d be losing more money on average.

Again, students are like this too. Suppose a student reaches the following question with 10 minutes left:

The student creates a system of equations, then hits a dead end when he realizes he can’t² factor it. So he faces a crucial decision: Should I try again, or put down a guess and come back later?

To an experienced tutor, the answer is obvious: move on! The next 10 questions are some of the hardest on the test, and you barely have enough time for them. Ideally, you’d also have time to go back to some earlier ones that you marked for review.

But most students will choose to try this question again. They do not want to lock in a loss. They’d rather take their chances and preserve the dream of getting every question right. As a result, they may not reach all of the questions. And they definitely won’t have time to go back to the easy questions they may have missed earlier in the test.

I’ve often struggled to understand why students have so much trouble with time management. Every question counts! Sometimes three more questions will get you 3 more points in a given ACT section. A slight adjustment in time management could get you those 3 points and save you several weeks of test prep.

But I think it’s a little easier to understand if I reframe the bets. Consider this new version of one of the bets I described earlier:

Every week for a full year you’ll choose one of two options: $9 for sure or a 50% chance to make $20.

It’s easy to choose the “right” bet here. I can handle not getting my $9 some weeks, and I know I’ll get an average of $10 every week, so I’ll come out $1/week ahead overall.

And check out this one:

Every week you’ll choose one of two options: Lose $8 for sure or a 90% chance to lose $10.

I’d rather not lose any money, but if I have to lose some, I’ll go with the $8 every week. It’s not a huge amount, and it’s better than the alternative.

Why is my behavior different here? Two reasons: the stakes are lower, and the bets happen more frequently. No particular outcome bothers me, and I’m betting so often that I know I’ll lose less over time by choosing the $8 option.

I think there’s a similar dynamic at play with tutors and students. To a student, the stakes are incredibly high. If they haven’t taken many real tests (or realistic mock tests), then this test they are taking feels like THE ONE. For me, the stakes are lower, and I’ve seen these scenarios a thousand times: sure, some students will get lucky or unlucky this time or that, but over time, the right strategies are obvious.

So I think I understand why students make these mistakes…but what can I do about it? How can I get my students to see my point of view, or at least adopt the correct strategies? That is the subject of the rest of the articles in the  Decision Hygiene series…coming soon!

1. These bets (and many of the points made here) are based on things I read in Daniel Kahneman’s Thinking, Fast and Slow.

2. You actually can factor it with u-substitution, but it’s quite rare for students to take this approach.