The objective of behavioural economics is to model and quantify the impact of psychological factors such as emotions, misperceptions and cognitive biases on our financial decisions.
The Profit-Loss Test
Imagine you have to choose between a blue button and a red button. If you push the blue button, you are guaranteed to find 50 CHF credited to your bank account. And you can keep that money, no strings attached. However, if you push the red button, you have a 50% chance of getting 100 CHF and a 50% chance of getting nothing.
What do you choose? Do you push the blue button and miss out on the chance to win 100 CHF? Or do you push the red button and risk leaving empty-handed? Studies have shown that most people would choose the blue button. The absolute surety of gaining 50 CHF appeals more to them than the risk of winning nothing.