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October 25, 2020
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Paradox of the current market situation – check if it also applies to you – Blocksats

In conditions of economic uncertainty, investors are more willing to take safer, but at the same time less profitable activities – this is noted by analysts of the Polish Institute of Economics (PIE).

Today we prefer safe investments

“Research shows that market participants tend to erroneously assess risks and, as a result, distort the probability of a given phenomenon

– you can read in the new issue of Tygodnik Gospodarczego PIE. Higher level of uncertainty means less information available here. In such a state there is a greater chance of overestimating or underestimating the risk. Related to this – as the authors of the article indicate – the so-called Ellsberg paradox.

PIE experts add that in conditions of market uncertainty, investors are more willing to take safer, but less profitable actions.

Today, investors are willing to choose “Risky options with known or more predictable probability distribution, at the expense of speculation and options with less certain probability distribution.”

“The fear of a more severe, unexpected loss may stop the investor from taking the necessary actions – what the effect may be untapped investment potential or no change in investment strategy in the event of losses in a given field. ”

– we read further.

It turns out that under the influence of significant stress, entrepreneurs or investors are starting to ignore important indicators that speak about the low probability of a phenomenon. This happens when the decline in the value of assets is accompanied by emotions.

“Those who operate in only one area are particularly vulnerable. In the absence of diversification of assets, an incorrect risk assessment during a period of economic change can lead to serious losses for entrepreneurs, experts say. This is the case with a coronavirus threat. “

– he adds gazetaprawna.pl.

It is certainly worth taking this into account when investing in kryptowaluty. Hence, it is often mentioned that buying smart not only digital currencies, but also gold or silver.

On the other hand, it can be considered a real paradox that during a crisis investors prefer to earn less at a lower risk price. The history of building fortunes of many millionaires shows that the crisis was the time with which the latter built their property at risk.

Ellsberg’s paradox

The Ellsberg paradox mentioned above is a concept in decision theory and in experimental economics. The point is that most people do not work as intended expected utility theory. “It’s usually interpreted as evidence that people try to avoid formulating an estimate of the value of probabilities.” – we add after Wikipedia.

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