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Loss aversion is not a behavioral bias
In his famous book "Thinking, Fast and Slow", the Nobel laureate Daniel Kahneman described one common example of a behavioral finance bias:
"You are offered a gamble on the toss of a [fair] coin.
If the coin shows tails, you lose $100.
If the coin shows heads, you win $110.
Is this gamble attractive? Would you accept it?"
(I have modified the numbers to be more realistic in a financial market setting, but otherwise it is a direct quote.)
Experiments show that most people would not accept this gamble, even though the expected gain is $5. This is the so-called "loss aversion" behavioral bias, and is considered irrational. Kahneman went on to write that "professional risk takers" (read "traders") are more willing to act rationally and accept this gamble.
It turns out that the loss averse "layman" is the one acting rationally here.
It is true that if we have infinite capital, and can play infinitely many rounds of this game simultaneously, we should expect $5 gain per round. But trading isn't like that. We are dealt one coin at a time, and if we suffer a string of losses, our capital will be depleted and we will be in debtor prison if we keep playing. The proper way to evaluate whether this game is attractive is to evaluate the expected compound rate of growth of our capital.
Let's say we are starting with a capital of $1,000. The expected return of playing this game once is initially 0.005. The standard deviation of the return is 0.105. To simplify matters, let's say we are allowed to adjust the payoff of each round so we have the same expected return and standard deviation of return each round. For e.g. if at some point we earned so much that we doubled our capital to $2,000, we are allowed to win $220 or lose $200 per round. What is the expected growth rate of our capital? According to standard stochastic calculus, in the continuous approximation it is -0.0005125 per round - we are losing, not gaining! The layman is right to refuse this gamble.
Loss aversion, in the context of a risky game played repeatedly, is rational, and not a behavioral bias. Our primitive, primate instinct grasped a truth that behavioral economists cannot. It only seems like a behavioral bias if we take an "ensemble view" (i.e. allowed infinite capital to play many rounds of this game simultaneously), instead of a "time series view" (i.e. allowed only finite capital to play many rounds of this game in sequence, provided we don't go broke at some point). The time series view is the one relevant to all traders. In other words, take time average, not ensemble average, when evaluating real-world risks.
The important difference between ensemble average and time average has been raised in this paper by Ole Peters and Murray Gell-Mann (another Nobel laureate like Kahneman.) It deserves to be much more widely read in the behavioral economics community. But beyond academic interest, there is a practical importance in emphasizing that loss aversion is rational. As traders, we should not only focus on average returns: risks can depress compound returns severely.
Original source:
Read the original article on Dr. Ernest Chan’s blog here
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Ambiguity and complexity in #stocktrading and #investments are exacerbating in the times of market decline and high volatility. However Bruce McCain, a prominent expert and contributor to the topic, says that investors should lean against seemingly bad news, not to quit the market but the reverse - advance.
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Hi, guys, how do you feel about yesterday Crypto #WorldCup Day 1? Did you make your bets on #Crypto Yoda or David Sønstebø? What a match, what a storm of emotions! Feel puzzled? Don’t, it is still the same 2018 FIFA World Cup that takes place in Russia : CryptoCup is a World Cup prediction game that employs blockchain technology. As you might guess every team player has a crypto-related nickname. World Cup is for sure one of the biggest betting events and it is great to see that blockchain is leveraged to clear up all the corruption and mess around sports gambling. Cryptocurrency and blockchain another time prove it is no longer an isolated geeky area but the very real part of daily life. Let's share, whom are you cheering for at this Wolrd Cup? What is your favorite team, or maybe a player? What are your bets ? Awesome picture  https://cryptocurrencynews.com/crypto-world-cup/ |
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Hello everyone!
Quantor is a marketplace of investment algorithms and educational solutions for cryptocurrency and traditional financial markets!
Quantor is an ecosystem that integrates the marketplace of investment solutions and an online learning platform for crypto-currency markets, knowledge and skills of investment industry experts and developers of investment algorithms.
Computer technologies increase reliability and efficiency in the investment industry, reducing the risk of a human factor in making investment decisions.
The main objective of the platform is to create a know-how conveyor for the implementation of profitable and reliable investment algorithms in a decentralized economy.
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Hello everyone!
Quantor is a marketplace of investment algorithms and educational solutions for cryptocurrency and traditional financial markets!
Quantor is an ecosystem that integrates the marketplace of investment solutions and an online learning platform for crypto-currency markets, knowledge and skills of investment industry experts and developers of investment algorithms.
Computer technologies increase reliability and efficiency in the investment industry, reducing the risk of a human factor in making investment decisions.
The main objective of the platform is to create a know-how conveyor for the implementation of profitable and reliable investment algorithms in a decentralized economy.
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Once virtual cryptocurrency forges its ways to the real world: fiat- crypto exchange has advanced with Binance move. Furthermore Binance CEO CZ reveals the plans < to create a major $1 bln cryptocurrency-based fund to support blockchain and crypto startups>. We definitely witness some major changes in the business landscape, which are defined by cryptocurrency. The question is not if it is going to major part of our daily reality. The question is rather how well you are prepared for this reality. Quantor runs pre-sale : make sure you are on track for the changing reality - catch our special limited offer! Tokens sale: 35% OFF. https://cointelegraph.com/news/exclusive-world-s-top-crypto-exchange-binance-sets-up-bank-account-in-malta |
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#Quantor has launched Pre-Sale. We are happy to see you on aboard. Only limited amount of QNT tokens available at a great discount of 35%!!! Learn More: https://tokens.quantor.coFinancial services provider Mastercard has filed a patent to secure card information for payments on a blockchain. The patent application dubbed “Method And System For Payment Card Verification Via Blockchain” describes a public blockchain-assisted conveyance and retrieval of payment processes to verify and secure users’ information. The Moscow Exchange is looking to create infrastructure for companies to conduct ICOs and publish information about certain tokens The world’s 5th largest cryptocurrency EOS announces its own blockchain is set to launch today. EOS is currently the fifth largest cryptocurrency by market capitalization, with a market cap of $12.8 bln. The coin has seen just over 3 percent growth over the past 24 hours to press time, trading at $14.37. After an intense and extensive investigation, South Korean government has cleared Bithumb crypto exchange of any wrongdoing Changes in leaders: BTC: $7 645,57 (-0,89%) ETH: $602,57 (-1,30%) XRP: $0,669218 (-2,28%) BCH: $1 117,18 (-2,87%) EOS: $13,97 (0,51%) Capitalisation of all crypto currencies $341 832 105 145 |
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#Quantor has launched Pre-Sale. We are happy to see you on aboard. Only limited amount of QNT tokens available at a great discount of 35%!!! Learn More: https://tokens.quantor.coFinancial services provider Mastercard has filed a patent to secure card information for payments on a blockchain. The patent application dubbed “Method And System For Payment Card Verification Via Blockchain” describes a public blockchain-assisted conveyance and retrieval of payment processes to verify and secure users’ information. The Moscow Exchange is looking to create infrastructure for companies to conduct ICOs and publish information about certain tokens The world’s 5th largest cryptocurrency EOS announces its own blockchain is set to launch today. EOS is currently the fifth largest cryptocurrency by market capitalization, with a market cap of $12.8 bln. The coin has seen just over 3 percent growth over the past 24 hours to press time, trading at $14.37. After an intense and extensive investigation, South Korean government has cleared Bithumb crypto exchange of any wrongdoing Changes in leaders: BTC: $7 645,57 (-0,89%) ETH: $602,57 (-1,30%) XRP: $0,669218 (-2,28%) BCH: $1 117,18 (-2,87%) EOS: $13,97 (0,51%) Capitalisation of all crypto currencies $341 832 105 145 |
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When contributing to an ICO how important it is to have a company planning or already enlisting in an exchange?
Do you invest in the ICO because you believe into an ICO or just speculating on the coin price rise?
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As all of the altcoins get huge dumps in price only due to bitcoin fluctuations, would it benefit if there were no bitcoin?
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As all of the altcoins get huge dumps in price only due to bitcoin fluctuations, would it benefit if there were no bitcoin?
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Quantor to present at InvestPro International Conference in Limassol, Cyprus 5-6 June. The conference is hosted by Bosco Conference which will run simultaneously with InvestPro Exhibition. Over 300 delegates are expected to attend including CEOs of Europe’s largest banks, respected lawyers and top entrepreneurs from Fintech industry. Co-founder of Quantor will have a chance to talk about our project and give a speech on New investment opportunities: Integration of Algorithmic trading and Blockchain. We will make the most of networking opportunities and hope to establish strong and lasting connections with other projects! https://bosco-conference.com/…/2018/investpro-kipr-limassol… To fully develop the ecosystem and implement all services of the platform, the Quantor team expands our community. Every member can participate in Quantor project to be a part of the ecosystem, invest into trading bots and access the platform services. Learn more about Quantor project on our website: https://tokens.quantor.co  |
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Today, on May 29, you will be able to meet the #Quantor team, ask questions about new investment opportunities, integrate algorithmic trading and blocking from #Quantor
the entrance is free
Moscow, Bersenevsky lane., 2, p. 1, of. 301 BERSLOFT
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