What are Certainty/possibility effects?
Certainty and possibility effects describe how people overweight outcomes that are certain and overweight changes from impossible to merely possible, even when the objective probability shift is the same elsewhere on the scale.
How it works
Moving from a 0% chance to a 5% chance feels much more significant than moving from 30% to 35%, even though both are a 5-percentage-point increase. Similarly, reducing risk from 5% to 0% feels far more valuable than reducing it from 50% to 45%. Kahneman and Tversky documented these distortions in prospect theory’s probability weighting function.
Applied example
Lottery ticket sales thrive because the shift from ‘impossible’ to ‘tiny chance’ is psychologically enormous. Meanwhile, insurance sells well because people pay a premium to eliminate small residual risks entirely.
Why it matters
These effects explain pricing anomalies in insurance, gambling, and public reactions to low-probability risks like terrorism or rare diseases.
