The Fourfold Pattern

  • A 2x2 table,
    • with X-axis is Gain&Loss,
    • Y-axis is Low&High Probability.
      • Top-Left
        • HighProb-Gain is Utility TheoryUtility Theory

          Utility Theory, which in essence, explains people’s choices and motivations by the utility of the outcomes.
          The Fourfold Pattern



      • Bottom-Left
        • LowProb-Gain is why lotteries are popular
      • Bottom-Right
        • LowProb-Loss makes insurance popular
      • Top-Right
        • exists in the form of bad gambles, risk-taking, etc.