A new posting: Bias Arbitrage

Observations and experiments have identified a number of cognitive biases. For example people tend have an over-optimistic control regarding the events the outcome of which depends partially on their skill (illusion of control) or people tend to assess the frequency of an event by the ease whit which occurrence of an event can be brought to mind (availability bias). These and some other biases result in a discrepancy between “objective risk” and the public’s “perception of the same risk”.

Amitai Aviram in a paper, Bias Arbitrage, develops the idea that this discrepancy provides the opportunity for politicians as well as private parties benefit themselves exactly the same way as the traders make money by trading the commodities when there is a price difference in time or location.

Find the paper at: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=928696

Great idea, but not so well developed in the paper.