Perceived and actual risk in financial markets

Nicholas Bullman & Richard Fairchild | 21 September 2012

The traditional approach to analysing human choices in financial services is the rational choice model, which is based on the view that market participants are fully rational, unbiased, emotionless self-interested maximisers of expected utility (with stable preferences).  Our entire understanding of how investors worked in the complex markets, and how consumers bought financial products, was predicated on the assumption that investors and managers in the f...