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First, humans tend to view losses as greater than reasonable levels.
- Tendency to be overly fearful of risk
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Then we see the “potential loss” as a loss rather than the actual expected value.
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Many people avoid that option.
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The market raises the price of what most people are trying to get.
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The result is a loss in a form that is difficult to see due to the fact that many people act together out of fear of loss itself.
- Decreased margins due to price increases and lost opportunities
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People who understand how this works feel that the “risk of not dying instantly from a failure of moderate size” is a gain.
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This “Risk is a bargain” thinking mitigates the “Excessive fear of risk tendency” at the beginning.
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