Misunderstanding Risk: Crashes & Terrorists & Sharks – Oh, My!

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Misunderstanding Risk: Crashes & Terrorists & Sharks – Oh, My! via Barry Ritholtz

I created a new presentation on Why Traders & Investors Misunderstand Risk and What They Can Do About It. I gave it a test run this weekend at the conference T3 Live and Todd Harrison put together which was a great event.

If I can say so myself, it was very well received. Its tough to follow just by the slides, because the accompanying narration is not part of the deck. Regardless, many attendees asked me for a copy of it, and here it is.

Misunderstanding Risk: Crashes & Terrorists & Sharks – Oh, My!

Our discussion today:

1. Understanding what we Fear – and why
2. Misunderstanding “Risk” – hurts performance
3. Recognizing these errors and avoiding them

Who Is This Guy?

Blog began in July 2003

32,473 Posts

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How Your Brain Interferes with Your Investing

Behavioral Economics

  1. Herding, Groupthink
  2. Optimism Bias
  3. Confirmation Bias
  4. Expert Opinions
  5. . Recency Effect
  6. Endowment Effect
  7. Hindsight Bias


  1. Anticipation vs. Rewards
  2. Selective Perception/Retention
  3. Words vs Images
  4. Pattern Recognition
  5. Data vs Narrative
  6. Cognitive Dissonance
  7. Species of Dopamine Addicts

Risk Aversion

  1.  Misunderstanding risk
  2. Fearing big scary things
  3. Black Swans
  4. What will kill you? Not that!
  5. Biggest financial fears
  6. What hurts portfolios
  7. Recognizing your bad behavior

The Deadliest Animal in the World

Misunderstanding Risk

Mosquitoes are the deadliest creature on earth; Man only comes in second

Risk of Terrorism

2010: U.S. noncombatant fatalities from terrorism worldwide = 25

2011: Terror deaths = 8

People who die after being struck by lightning = 29.

Your Actual Risk

Misunderstanding Risk

You are…

35,079 times more likely to die of heart disease

33,842 times more likely to die of cancer

… than a terror attack.

See full slides below.

T3 Miami by TBP_Think_Tank

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