Bleed or Blowup? Why Do We Prefer Asymmetric Payoffs?

Nassim Nicholas Taleb
2004 Journal of Behavorial Finance  
This paper surveys the behavioral literature in search of possible explanations for the preference for negative skewness on the part of economic agents. 1) We relate the mathematical properties of skewness to biases in inductive inference and suggest further research needed for the conditions of the real world in which agents are not presented the probabilities of rare events but need to derive them themselves. 2) We link the acceptance of the occasional large loss for a steady small profit (as
more » ... dy small profit (as opposed to the opposite payoff) to elements of prospect theory and the research on well-being and the hedonic treadmill effects.
doi:10.1207/s15427579jpfm0501_1 fatcat:d6odm26n65ainmf25t4s3flbqe