MORGAN HOUSEL

A risk can be defined as an effect of uncertainty on the objective. It is a different outcome from what you expected and can address, create or result in opportunities and threats.

• Risk is not an expected adverse development. If you expect the outcome, it is not a risk.
• ...

Prior knowledge of an event’s outcome anchors the mind towards a certain kind of interpretation of how the event will unfold.

This makes the individual confirm the outcome to fit their existing expectations. If the outcome is entirely different from the expected result, t...

Oh yes; the biggest problems tend to arise when investors forget about the difference between probability and outcome—that is, when they forget about the limits on foreknowledge:

• when they believe the shape of the probability distribution is knowable with certainty (and that they know it...