Three cognitive biases walk into a bar…
Most people are loss averse. Meaning that the pain of losing something is felt about twice as strongly as the pleasure of gaining something.
Most people are also fairly bad at intuitively understanding risk. We understand certainty (0% and 100%) but tend to get everything in between muddled up. Some people err on the downside (thinking things are less likely than they really are) and some people err on the upside (thinking things are more likely than they really are).
If we combine being loss averse with also erring on risk’s downside, we will act extra conservatively.
If we are loss averse and err on the upside with risk, the two might actually manage to cancel themselves out a bit. In other words, even though we continue to be loss averse, we’re also biased to underestimate the chances of losing something and overestimate the chances of gaining something. In this case, two biases...