Message Font: Serif | Sans-Serif
No. of Recommendations: 2
I think that people usually have a really good grasp of the extreme probabilities. They understand when a particular event has less than a 5% chance of occurring, or more than a 95% chance, for example.

I'm pretty sure behavioral finance teaches exactly the opposite. The principals of LTCM, N Taleb, black swans, fat tails, and AA losing to 8-3 all teach us that it is human behavior to equate the improbable with the impossible. In fact, it appears that Taleb basically makes his living off investors mistaking the improbable for the impossible

That is something entirely different -- that extreme events occur more often than would be predicted by a normal distribution. I agree that that is the case with investment returns, but it has nothing to do with the point that I am making.
Print the post  


What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.