From What I Learned Losing a Million Dollars by Jim Paul and Brendan Moynihan. Six psychological fallacies of risk: • The tendency to overvalue wagers involving a low probability of a high gain and to undervalue wagers involving a relatively high probability of low gain; • A tendency to interpret the probability of successive independent events as additive rather than multiplicative. In other words, people view the chance of throwing a given number on a die to be twice as large with two throws as it is with a single throw; • The belief that after a run of successes, a failure is mathematically inevitable, and vice versa — also known as the Monte Carlo fallacy. Someone can throw double sixes 10 times in a row and not violate any laws of probability because each of the throws is independent of all others; • The perception that the psychological probability of the occurrence of an event exceeds the mathematical probability if the event is favourable and vice versa. For example, the pro...
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