4 Reasons Why Your Risk Assessments Aren’t As Great — Zivolve

3 min readOct 8, 2020

Sometimes, we purposely ignore risks because they threaten our identities or the short term reward is too alluring. Other times, our biased risk assessments are less self inflicted. Even when we are open-minded and eager to learn the truth, our risk assessments are impaired by our mind’s limited ability to store and assess constantly changing information, especially when we are contemplating our own risks. Here are four reasons why your risk assessments aren’t as great as they could be:

1. Optimistic Bias

Is when people believe that their own risk is less than that of other people’s risk for the same behavior. For example, first time bungee jumpers often believe they are less likely to be injured than other jumpers. Our optimistic bias is based on the four following factors: our desired end state, our cognitive mechanisms, the information we have about ourselves versus others, and our overall mood. Optimistic bias also impacts traders’ decisions when they believe they are less exposed to potential losses in markets.

2. Confirmation Bias

Is the tendency to search for, interpret, favor, and recall information in a way that confirms or supports one’s prior beliefs or values. For example, someone who has been drinking might Google “Is drunk driving safe” instead of “The dangers of Drunk Driving”. The effect is the strongest for desired outcomes, emotionally charged issues, and deeply held beliefs. The tendency to search for information that support’s one’s own decisions can be a major problem in trading. It often contributes to overconfidence of our positions, resulting in staying in trades well after they should have been abandoned.

3. False Sense of Control

Is the belief that the more control people think they have, then generally, the less worried they are. This is why, for many, driving a car feels safer than flying in an airplane despite statistics proving otherwise. The traders often feel in control of the stocks that they are invested in. In this case, they are less likely to worry about making risky decisions resulting in a perpetual cycle of overly risky behavior.

4. Exposure Therapy

Is the process of mentally adapting to the threat of a risk until it feels normal? Exposure therapy involves exposing people to the anxiety source or its context without the intention to cause any danger. Eventually, the therapy is thought to help them overcome their anxiety or distress. However, when the threat becomes too normal, we as traders become complacent of its existence, resulting in unnecessarily risky decisions.

Risk assessment is far more complicated than most people realize, but stock trading doesn’t have to be. There is no need to take on risk alone when you can improve your odds with Zivolve. At Ziggurat, we are building the next generation of intelligent trading assistance to optimize your portfolio though advanced mathematical models and AI assistance.

Give your mind a break from analyzing risk and download the Zivolve app for free today! Now available in the Apple App Store.