Introduction

Do you prefer chocolate or vanilla? Scary movies or romantic movies? Cats or dogs?

You may have simple, clear answers for each of those above questions. But, you may not. You may be thinking, “Why do I have to pick just one? They aren’t mutually exclusive! They’re not even opposites!” You may even be thinking, “I hate all of those things!” The representation of all this information in your brain is what we call value.

Types of Value and the Brain

Consider Sunny, who’s at a bakery, trying to decide between a chocolate donut and a strawberry donut. Figure 10.1 lays out the differences between them both in terms of their monetary value and in terms of Sunny’s own personal value:

Based on monetary value alone, the chocolate donut is the better option—Sunny gets the same amount of donut, but for less money. However, when you take into account Sunny’s own personal preferences which favor strawberry, he might go for the strawberry instead. Which donut Sunny chooses will be the result of a computational process that takes into account both the monetary value and the subjective value (how much Sunny in particular cares about the donut).

There is a broad region of your brain that cares about these sorts of things, and it’s one we’ve already discussed in this book…the prefrontal cortex! To be sure that this chunk of brain tracks value, we can measure the activity of prefrontal neurons and see if they correlate with the value of things you’re seeing. Some neurons in Sunny’s prefrontal cortex might look like Figure 10.2.

The first panel shows a “monetary value” neuron. This neuron gets excited upon seeing the chocolate donut, because it has some value. It gets a little more excited for the strawberry donut, because its value is a little higher. The second panel shows a “subjective value” neuron. Upon seeing the chocolate donut, this neuron gets a little excited. But when Sunny sees the strawberry donut, the neuron gets a lot more excited. These patterns of behavior are typical for neurons in places like the orbitofrontal cortex (citation) and the ventromedial prefrontal cortex (citation).

So, our brains care about not only the objective value of things in our world, but also subjective value. The latter is a lot more common than the former; you probably care about a lot more things than you know the prices of, off the top of your head. It looks like the idea of value in the brain may not be so straightforward…

Let’s look at some more factors that affect your perception of value!

Expected Value

Would you rather have $10, or spin a wheel for a 10% chance at winning $100? You might be the cautious, steady kind of person. You might take the $10 because it’s a sure thing, and it’s $10 you didn’t have before. Or, you might enjoy a bit of a risk! The thrill of spinning the wheel and the potential of getting a big payout might be worth not getting that $10. Whichever option you prefer, I’m willing to bet my own $10 that you don’t think these two choices are the same.

According to expected value, they are!

Expected value is the average value of an option over infinite time. In the case of the problem above, the expected value of the first option is $10, because it’s just a straightforward offer of $10. If you take that option 10 times, you’ll end up with $100. But the expected value of the second option is also $10, because if the odds of getting $100 are 1 in 10, and you spin the wheel 10 times, you’ll also probably end up with $100. In other words, if you multiply the probability (10%) by the total ($100) you get the same number as the first option ($10).

Mathematically, a certain $10 is the same as a 10% chance of $100, if you run through this problem infinitely many times. But do they feel the same to you? How can we quantify exactly how different these two options feel to us, even if we can consciously see that the math works out to give us the same reward over time?

Consider the following list of questions. Would you rather…

• Gain $50 or take a 10% chance at gaining $100?
• Gain $50 or take a 25% chance at gaining $100?
• Gain $50 or take a 50% chance at gaining $100?
• Gain $50 or take a 75% chance at gaining $100?
• Gain $50 or take a 90% chance at gaining $100?

Your answer likely changed as the odds of getting the $100 increased. We can calculate the expected values of each choice as:

• $50 vs $10
• $50 vs $25
• $50 vs $50
• $50 vs $75
• $50 vs $100

If you always make choices perfectly in line with expected value, this is what a graph of your choices would look like Figure 10.3:

According to mathematically rational behavior, you should always take the $50 when the expected value of the gamble is lower than $50, you should always take the gamble when the expected value of the gamble is higher than $50, and it’s random chance which one you should take when both expected values are equal. Is this how you chose? Perhaps! But life is rarely populated with such clean choices to make. Indeed, humans tend to pay some mind to expected values, but on average we don’t act “perfectly” mathematically. We all behave a little differently.

Delays, Distractors, and Diminishing Returns

The same amount of something can have a different value in different contexts. An ice-cold glass of water might have more value to you after a run in the hot sun than after a movie in an air-conditioned theater during which you drank a soda. An extra quarter might be very valuable to you in a cash-only establishment, but not much to you otherwise. A $30 shirt may not seem like a very good deal, unless it is next to a similar, $40 shirt. This last example illustrates the decoy effect: when you are more likely to select an option when there is a worse option there for you to compare it to. In all these cases, context is key.

What about your initial state of being as a form of context? When you have $10, getting another $10 is great! When you have $1000, getting $10 is still nice, but not quite as impactful as it was when you only had $10. This specific phenomenon is an example of diminishing returns: the more you get of something, the less valuable each addition of it is.

Having to wait for a reward is another factor that might diminish its value. Consider the following choices. Would you rather get…

• $50 now or $100 tomorrow?
• $50 now or $100 next week?
• $50 now or $100 next month?
• $50 now or $100 next year?
• $50 now or $100 in ten years?

Mathematically, $100 is always greater than $50. So there should never be a reason not to choose the $100, right? Not unless the delay has some effect on value. Indeed, many people find that it does.

Winning and Losing

All our examples so far have to do with the potential to gain money. What about losing money? Do the same rules govern our cognition surrounding that?

Consider the following questions. Would you rather…

• Lose $50 or take a 10% chance at losing $100?
• Lose $50 or take a 25% chance at losing $100?
• Lose $50 or take a 50% chance at losing $100?
• Lose $50 or take a 75% chance at losing $100?
• Lose $50 or take a 90% chance at losing $100?

You might find that your answers to this set of questions follow a different pattern than your answers to the “gain” version of the same questions. Often, people find the idea of just accepting a loss of $50 to be extremely disagreeably. Indeed, people tend to be riskier with potential losses than potential gains (reference), because “losses loom larger than gains.” Figure 10.4 shows the relationship between gains and subjective value, compared to the relationship between losses and subjective value. The amount that people tend to be pleased about gaining something is often lower than the amount that people tend to be upset about losing that same thing (reference).

We don’t just hate to lose things. We also hate for things to “go to waste.”

Suppose Sunny is at a restaurant he’s been to before. He usually gets spaghetti and meatballs, but today’s special is spinach alfredo. He’s curious about it and orders it, but when it arrives, he tries it and realizes he hates it. Sunny paid $17 for the spinach alfredo. Should Sunny just eat it, or should he order the spaghetti and meatballs for an additional $16?

Many people in this and similar situations will find themselves suffering through the thing we don’t like, because we already paid for it. Even if we didn’t eat the spinach alfredo, we wouldn’t go through the trouble of ordering a whole new dish. If you can relate to that feeling, you’ve probably employed the sunk cost fallacy before: assigning value to costs we have already paid

Logically, Sunny is never getting that $17 back. It’s gone. His decision to pay $16 more for a meal he will actually eat will not change that. But Sunny feels stress from the money already spent—the sunk cost. Sunny is also the kind of person to feel more pressured to attend an event if he’s pre-purchased tickets, to finish a book that he doesn’t like because he’s already devoted time to it, or to go through with a project even if it’s started poorly. In short, he doesn’t like to cut his losses.