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Using behavioural finance to understand markets

Behavioural economics has been slowly growing in popularity over the past few years, but can it help us understand the volatility in today’s markets?
Using behavioural finance to understand markets

Imagine that somebody offers you two alternative bets. The first has a 40% chance of winning and would give you a 40% profit on your money if you win. The alternative is a 20/1 shot where you would win 2,000% of your stake if it comes in. Which would you choose? Most people go for the second, but mathematically the first choice has better chances of giving you a good return. This little human quirk is known as the longshot preference, and is what keeps lotteries all over the world in business.

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