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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.
