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Prof. Tony Berrada, SFI@UNIGE, publishes article in Current Biology on research that shows that biases in risk perception do exist

Posted by
Anita Belitz Krasniqi
on
Thursday, June 23, 2016 - 13:15

SFI Prof. Tony BerradaSFI@UNIGE, and co-authors show that risk perceptions are inclined to after-effects. While running a set of experiments, the researchers find that after looking at risky stock, participants view a medium-risk stock as safer, whereas after looking at a safe stock, the same participants view the same medium-risk stock as riskier.

These results suggest that contrary to what conventional economic theory assumes, biases in risk perception do exist. The existence of variance after-effects is likely to impact investor behavior and have significant effects on asset prices and market dynamics. These results might help explain some extreme trading behaviors due to adaptation to chronically high levels of risk leading to subsequent risk “blindness”.

Read the article in Current Biology here.