We usually assume that people calculate things rationally in economics. If we shop for a car we look for the best value; if two pizza places are equally good, we lean towards the cheaper one. Some economists have noted that sometimes, people don’t make these perfect calculations. For example, humans tend to exaggerate fears — the risk of a small loss requires a much larger gain.

One explanation for this – humans operate not on calculations, but on perceptions. We judge things by how big an imprint they make in our mind–not by crunching numbers. We lock our houses and cars up, but if our house or portfolio loses a few thousand dollars in value, it’s more abstract and we treat it as less important, even if it’s numerically the same. If the odds of a get-rich-quick scheme succeeding are extremely low, we may lean towards it because it makes a larger impression in our minds.

Judgments that humans make may seem irrational, but that doesn’t mean they are–it may just be the method by which we judge.