Your Judgment of Risk Is Compromised
Harvard Business Review
JUNE 21, 2012
Daniel Kahneman and Amos Tversky provide perhaps the best theoretical framework in which to understand the phenomenon. Betting on horses with odds between 4/1 and 9/1 has an approximately constant rate of return (at minus 18%), which implies that bettors are quite good at distinguishing between probabilities over this range.
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