Safe experience lull you into a false sense of security, even when you know about a clear and present danger. That's what experts on risk and decision making** say about the role of our personal experience in our risk perception. Take 9/11 for example. Many, suddenly concerned about the risk in flying, opted to drive instead. However, in reality the risk of injury or death while driving is multiple times that of flying. Why was driving perceived as safer? Studies of decision making say that a big factor is the *way* people get most of their information. When that information comes from repeated personal experience (like car trips) it is given a bigger weight in the decisions we make. The catch is when the typical experience shows no danger simply because the threat is very rare, novel (for us) or out of our awareness.
It's August 25th, 2022 and, stock indexes are levitating, held up by some unseen force. The "Doom and Gloom" on you tube is starting to ring hollow. We know the risks: inflation, dollar, rates, etc. etc. etc. I won't bore you further with my mundane perspective of, what has been for me, a mundane market.
You already know the punchline cleverly hidden in the chart on the right (a 3 day chart of VIX).
-Trade Safe.
**The research on decisions from experience is extensive but these are good points of departure:
It's August 25th, 2022 and, stock indexes are levitating, held up by some unseen force. The "Doom and Gloom" on you tube is starting to ring hollow. We know the risks: inflation, dollar, rates, etc. etc. etc. I won't bore you further with my mundane perspective of, what has been for me, a mundane market.
You already know the punchline cleverly hidden in the chart on the right (a 3 day chart of VIX).
- Out of curiosity, was I the only one caught off guard?
- If you were asked, out of the blue, to draw the 3 day VIX, would it look like that?
- and lastly- The best explanation I have is the one offered above. What would you add? or subtract?
-Trade Safe.
**The research on decisions from experience is extensive but these are good points of departure:
- Thinking Fast and Slow, D. Kahneman. Chapter 30. Rare Events
- The Black Swan: The Impact of the Highly Improbable Paperback – January 1, 2008. pp 76-78
- Decisions from experience and the effect of rare events in risky choices. Psychological Science. 15. 534-539. Hertwig, R., Barron, G., Weber, E., and Erev, I. (2004).
- The Effect of Safe Experience on a Warnings’ Impact: Sex, Drugs, and Rock-n-Roll." Organizational Behavior and Human Decision Processes 106, no. 2 (July 2008): 125-142. Barron, Greg, Stephen George Leider, and Jennifer N. Stack. "
