Coconuts versus sharks! Dr Ben Holdsworth on why we struggle to get investment risks in perspective.
If you have ever been fortunate enough to swim on Bondi Beach among the surfers, or in the chilly waters of Cape May – where the film Jaws was filmed – in the back of your mind may have lurked the thought that a large shark might just be out there looking for lunch. What was that shadow?
Yet most of us do not think twice about the risks of sitting under a coconut tree, which is far more likely to kill you from a falling coconut, as is the malaria-carrying mosquito that lands on bare flesh as the sun sets in paradise.
Nor did we consider the risk of a deep vein thrombosis from the long-haul flight we took to get there. We fixate on the shark.
Humans are irrational and find it hard to place risks in perspective, in part because they involve numbers – which many people hate – are influenced by fear or recent news and often depend on the way in which they are framed, to name just a few of the challenges.
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