The difference between Possibility and Probability

Investor Cognitive Biases: Neglect of Probability In a classic experiment in 1972, participants were divided into two groups. Members of group 1 were told they would receive a small electric shock. Members of group 2 were told there was a 50% probability that they would receive a small electric shock. After this information was provided, researchers measured physical anxiety (heart rate, nervousness, sweating) shortly before starting. The result: Absolutely no difference in the anxiety levels of the two groups. Puzzling. Next, researchers announced a series of reduction in the probability of getting shocked to group 2, from 50% down to

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What your decision-making style says about your behavioral biases

First, a quick quiz Note your score and read on… Biases and Investing One of the foundational principles of this site is that as much as traditional economics likes to think of human beings as rational beings who make decisions based on clear and unchanging criteria, we are actually incredibly flawed in how we perceive and make decisions. Our brains are prone to taking easy shortcuts to avoid expending the energy required to process information objectively before making each decision. And so it is, in investing. This laziness leads to a host of handicaps or behavioral biases that merit their

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