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Bleed or Blowup? Why Do We Prefer Asymmetric Payoffs?
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
doi:10.1207/s15427579jpfm0501_1
fatcat:d6odm26n65ainmf25t4s3flbqe