come across some interesting things

Discussion in 'Trading' started by trader_david, Nov 22, 2009.

  1. I am reading Scott Plous book, he gives out two example about human being how they makes decision

    a. 1 in 1000 of chances of winning $5000
    b. a sure gain of $5

    most people love to select the first one. actually it is very risky. that is lottery business always popular

    given two choices:

    a. 1 in 1000 chances of losing $5000
    b. a sure loss of $5

    most people will choose the sure loss. insurance industry thrives its bussiness based on this. actually insurance does not prevent loss.

    as for trading, some risk taker goes for the first one. but most people are risk aversion, so they select sure loss at the second question, that is why 90% lose
  2. I get what the author is trying to demonstrate but this example is just plain stupid.

    There are more factors involved than just win/lose 5 dollars etc..

    This is dumb.
  3. Anything that makes you think at all has merit.
  4. This is one of the results of Kahneman and Tversky's prospect theory (1979). Generally, this is exactly the sorts of things behavioral economists study.