Research Review:  Probability weighting and investor behaviour

Rob Hamshar  | Portfolio Construction Forum  |  08 April 2021  |  1.00 CE

The difficulty most humans seem to have with statistical and probabilistic thinking has been well-documented in recent decades. A range of biases and errors, such as base rate neglect and the availability heuristic, can lead us to dramatically over- or under-estimate what is likely to happen in the future. However, flawed probability estimates are rarely the full story. Even when decision-makers have knowledge of objective probabilities, they will often add their own subjective “weights” based on personal preferences or emotional factors. This pheno...

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