Evaluate Your Risk by Simone Vine
To accurately determine risk, you must filter classical
statistical factors. How, you ask? With a personal risk
In classical statistics, risk is defined as the standard
deviation from the mean. To some extent, this basic concept governs the minds of most decisionmakers,
including investors: A decision in a given situation carries a risk equal to the deviation from the average personís decision. Of course, it is anybodyís guess as to what the average personís decision might be, so you cannot be certain how far away you are from the average. Thus, there is incongruence between a generally acceptable conceptual framework and the real-life behavioral aspects of decision-making. If decision-makers forget that the concept of risk is always individual in nature, their decisions become riskier and less realistic.