We’re Not Rational: Prospect Theory in Everyday Healthcare Decisions

 

Healthcare is full of decisions, but if we think we’re making them rationally, we’re fooling ourselves. Humans are capable of great rationality, as demonstrated by progress in nearly every facet of life, yet we are predominantly irrational far more of the time. We fall into simple traps guided by gut feelings, group affiliation, inertia, and other cognitive shortcuts. After all, carefully weighing every option for potential benefit and harm is not only impractical — it's exhausting.

We humans are seldom pure rational actors. Here, I want to briefly lay out Prospect Theory as an alternative model to the traditional “rational choice” view, and show how it directly applies to healthcare. Among its key ideas: we fear losses more than we value gains, we distort probabilities, and we judge outcomes relative to a reference point, not in absolute terms. That’s why gaining $10 feels very different depending on whether you had nothing or $1,000. The more we have, the less each additional gain feels a phenomenon known as diminishing sensitivity. Through real-life examples, I hope to highlight how understanding this theory can improve the way we approach patient behavior and inspire productive ways to address our shared blind spots through informed collaboration.

We Are Risk Averse… to a Fault

Risk aversion is exactly what it sounds like, avoiding risk, especially when we feel we’ve got something to lose. That doesn’t sound unreasonable. No one wants to lose money, health, or years of life. But the trouble is, our risk aversion often shows up in ways that are… well, irrational. Let me show you. Choose from the options below:

Option A: A 100% chance of receiving $50 Option B: A 50% chance of receiving $100, and a 50% chance of getting nothing

Most people choose Option A, the sure thing, even though both options have the same expected value. Why? Because we fear the zero. We don’t like the idea of losing out, even if the possible gain is just as good. That’s risk aversion. Now consider a healthcare version: You’re diagnosed with a life-threatening illness. Your doctor offers two options:

Option A: A guarantee of living 10 more years in good health Option B: A 50% chance of living 20 years, and a 50% chance of dying immediately

Again, most of us would take the safe bet. But these outcomes are mathematically identical. What gives?

Our brains don’t operate like intuitive statisticians. We respond to feelings, not formulas,  fear of loss, hope for certainty, and avoidance of regret. And these emotions drive behaviors that aren’t always in our best interest. This fear of risk shows up everywhere:

• Patients skip life-saving surgeries because there’s a 10% chance of complications
• People delay preventive care because the benefits feel abstract, while the costs, time, discomfort, effort, are immediate
• Many continue unhealthy habits, irrationally gambling that they’ll be the lucky exception who avoids consequences

Ironically, in trying to avoid the worst-case scenario, we often lock ourselves into a guaranteed loss. We prefer the devil we know (our current lifestyle) over the devil we don’t (a new medication, a colonoscopy, eating more vegetables). To better understand this behavior, I want to walk through four core decision-making scenarios from Prospect Theory, and how they show up in real-world healthcare.

High Probability Gain

Lack of certainty promotes conservative decision-making. Even small risks make us cautious, we settle for less if it's guaranteed. Let’s start with a simple case: Would you prefer $900 for sure, or a 90% chance of $1,000? Most people choose the sure $900. That 90% feels more like 80%, and it’s definitely not guaranteed. Now apply this to something like the flu vaccine. The flu shot offers a highly likely benefit: reduced risk of getting sick, being hospitalized, or missing work. But none of this is guaranteed. Meanwhile, the downsides, a sore arm, a day of mild fever, feel very real. Severe side effects, like anaphylaxis or Guillain-Barré Syndrome, occur in about 1 in a million doses,  yet that remote possibility feels disproportionately weighty.

What might be missing? Feedback. We don’t feel the success of a flu vaccine. We don’t throw a party for the flu we never got. And that makes the benefit invisible, while the small downside is tangible.

Low Probability Gain

Here, we irrationally overvalue a slim chance of success, especially when the alternative feels like a certain loss. This is lottery logic — and also why some patients reject palliative care and pursue unproven miracle treatments. A terminally ill patient is told, “You have six months to live. Palliative care will keep you comfortable.” But they opt for a costly experimental therapy with only a 10% chance of success and a 90% chance of suffering or dying sooner. Why? Because doing nothing feels like a guaranteed loss. A small chance of a cure suddenly feels much larger than it is. This is also fueled by emotional relativity: the value of that small chance feels much greater when the alternative is certain death.

Would you take a 10% chance of losing nothing with a 90% chance of losing $1,000, or a 100% chance of losing $900?

Most people irrationally take the gamble, and suddenly, that patient doesn’t seem so irrational after all.

High Probability Loss

When bad outcomes are likely, but not guaranteed, we tend to downplay them and continue risky behavior.

This is where people continue to smoke, drink excessively, overeat, and avoid medications, even though the risks are high. Why? Because nothing bad has happened yet. And because we’ve all heard of someone who "beat the odds",  the 90-year-old chain-smoker who lived to tell the tale. That story becomes our mental permission slip. The real consequences, illness, disability, a shortened life, are distant and easy to ignore. The pleasures of unhealthy habits are immediate. A Coke tastes good now. A statin doesn’t.

Low Probability Loss

Here, we overreact to minuscule risks, especially when they’re emotional, unfamiliar, or beyond our control. Again, Think vaccine hesitancy. People avoid vaccines because of a 1-in-a-million chance of a severe reaction, even when the benefit is dramatically reduced disease, hospitalization, and death. A tiny risk becomes inflated in our minds simply because it exists.

Other examples include:

• Avoiding colonoscopies due to rare complications
• Quitting statins over risk of diabetes or rhabdomyolysis
• Rejecting treatments based on hearsay

Small odds are interpreted as real threats, especially when fear, distrust, or uncertainty are in play. I don’t want to sound as if I’m dismissing the real rare occurrences that many individuals face, however we must see these for what they are: the exception, not the rule.

Why Does This Matter?

Understanding Prospect Theory helps us move away from the fantasy of the rational patient. It acknowledges what Daniel Kahneman has said plainly: we are not intuitive statisticians. Our decisions are not math-driven; they're emotionally skewed, context-sensitive, and often illogical in predictable ways. But this isn’t about calling people stupid. It's about recognizing shared human tendencies. Patients, providers, and policymakers all fall for the same cognitive traps.

And here's the opportunity, once we understand the patterns, we can design better systems. For example, we can use individualized, visual simulations that project health outcomes with or without treatment or lifestyle changes helping patients visualize their own relative risk and understand delayed benefits. This kind of framing creates new reference points: a future version of oneself that’s healthier, more active, and avoids complications. As AI continues to improve and integrate into healthcare, these tools will likely help both providers and patients make better-informed, behaviorally realistic choices.

I’m not sure where the full application lies, but I hope this article has shown that by embracing behavioral reality,  rather than rational idealism,  we can make smarter, more compassionate, and more effective healthcare decisions.