V.17:6 (267-269): Studying Risk Behavior by Ari Kiev, M.D.

Studying Risk Behavior

Taking risk and taking losses are two different parts of trading. Here’s how to manage the emotional side of risktaking. by Ari Kiev, M.D. If you think about it, the markets are a natural laboratory for studying risktaking behavior, especially decisionmaking in a volatile, unpredictable, and uncertain environment. It is the given task of the trader to reduce risk by identifying patterns in sectors, companies in specific as well as the marketplace in general. This can be an extremely difficult task for even the most sophisticated of traders as we have seen in the past year, due to not only the turbulence in Asia and the falloff in Russia and Latin America, but the turmoil in European markets as well. Not only have traders had to deal with the uncertainty and the volatility and illiquidity of the markets, they have had to contend with the psychological consequences of failure and, in many instances, newly discovered vulnerability. They have had to deal with loss.