Crossing the street in traffic

Crossing the street in traffic....
We've all done this: you’re in a hurry, so instead of waiting for the “walk” sign you look both ways and see that the nearest cars are far enough away that you can cross safely before they arrive where you are. You start walking and (I’m guessing) make it across just fine.

1. Did you know (with absolute certainty) that the cars you saw in the distance weren't moving fast enough to hit you? If so, how did you come to know this? If not, how could you possibly justify making a decision like this, given the extremely high stakes? After all, you were literally betting your life ...
2. Can logic help us understand how a rational person could make a risky decision like this, despite not having perfect knowledge of all relevant factors?

The street-crossing example is chosen for the vivid consequences of making a wrong decision,
but less dramatic examples would make the point. We almost never know with absolute certainty what the consequences of our actions will be, but we usually manage to make reasonably confident decisions nonetheless — and most of the time we choose right. This needs explaining.

Original Source:
Probabilistic reasoning and statistical inference:
An introduction (for linguists and philosophers)

What is Risk?

Sometimes it makes sense to go back to to your roots and ask yourself, what is RISK really?

Enjoy!

Original Source: What is Risk? (pdf)

Top 10 default retirement age risks for employers

The abolition of the default retirement age will have several knock-on effects for employers. What is most at risk?

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Don’t Stop Thinking About Tomorrow

“A short quiz:
If you plan to eat hamburgers throughout your life and
are not a cattle producer, should you wish for higher or
lower prices for beef? Likewise, if you are going to buy a
car from time to time but are not an auto manufacturer,
should you prefer higher or lower car prices? These
questions, of course, answer themselves. But now for the
final exam: If you expect to be a net saver during the
next five years, should you hope for a higher or lower
stock market during that period? Many investors get this
one wrong. Even though they are going to be net buyers
of stocks for many years to come, they are elated when
stock prices rise and depressed when they fall. In effect,
they rejoice because prices have risen for the
“hamburgers” they will soon be buying. This reaction
makes no sense. Only those who will be sellers of equities
in the near future should be happy at seeing stocks rise.
Prospective purchasers should much prefer sinking
prices.”

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Stocks Are Less Risky Than Bonds

It is not stock investing that is risky. It is valuation-uninformed stock investing strategies that are risky. The risks of stocks can be largely avoided by those willing to give consideration to the effect of valuations on long-term returns. It is much harder for investors to avoid the risks of bonds, since inflation is unpredictable and constitutes the biggest risk for bond investors. For the valuation-informed investor, bonds are more risky than stocks.

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Create your own retirement paycheck

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Hedgefunds selling Alpha as Beta?

In a desperate market everything seems possible.
Even selling Alpha as Beta...

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