Bruce Moss: Lost in translation

It is well known people generally have skewed perceptions of risk. We give dramatic outcomes much greater attention than more frequent smaller calamities.

A good example is the perceived risk of flying compared to travelling by car. In both cases there is the risk of death. Although far more people are killed or injured on the roads than in plane crashes, a single crash, in which a great many lives can be lost at once, causes people to consider flying as riskier than road travel.  The private investor’s perception of investment risk is subject to similar biases. For example, large falls, (often temporary) in stock markets are given much greater attention than the steady (and normally irreversible) loss in the real value of savings due ...