Explainer: how our understanding of risk is changing


Under the traditional notion of risk, people react predictably based on how risk-tolerant they are.

Here, risk is calculated by combining the probability of something occurring (such as rolling a six with a pair of dice) with the value of the outcome (how much you have wagered).

But our understanding of risk is changing.

We now know that a whole host of factors, from your personal history to your mood and age, all come to bear on how you perceive and take on risk.

UpSiseDown 1a EPA AAP LLLLFor example, it is well known that investing in relatively high-risk stocks yields much higher returns than investing in relatively low-risk bonds.

In the last 100 years US stocks have produced an…

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