YouTube Video: High Returns from Warped Risk

High Returns from Warped Risk

Why do we buy lottery tickets and at the same time avoid buying shares because we fear market crashes? We consistently overestimate the occurrence of rare events and this distorts the prices of particular assets. We also focus on anecdotal information rather than general information. The best forecasters work around this cognitive bias by always using general information which dodges this cognitive bias called base rate neglect.

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