Ellen Furlong and John Opfer, two researchers at Ohio State University, have identified an unusual flaw in thinking that impacts people's actions when bargaining or gambling. Basically, they showed that $1 and 100 cents are not equal!
They engaged volunteers in a prisoner's dilemma situation, where the two "partners" are offered rewards to either work together or oppose each other via betrayal. The guiding idea is that over many rounds of play, the two partners will gain the most rewards if they cooperate. BUT, in any specific round of play, an individual person will earn the most rewards if they betray a partner who has stayed loyal. The reward to both players is lowest when both players defect or try to betray their partner.
Their odd finding: The level of cooperation between partners went up when the reward was increased from 3 cents to 300 cents...BUT the level did not change when the increase was from 3 cents to $3.
The researchers concluded that people are "often lured into making decisions by numbers that seem bigger than they really are." That is, $1 does not equal 100 cents!
The results of this study are consistent with research on how the brain handles calculations involving multuiple quantities, as people "tend to overestimate differences between small quantities and underestimate differences between large ones."
Source: E. Nagourney's "Vital Signs," New York Times, Feb. 2, 2009