Familiarity Bias vs. Ambiguity Effect

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Or otherwise known as reliance on old-fashioned financial institutions and outdated economic structures.  Partly, it is due to habit; partly, because of our concerns about liquidity; and partly, because we think that it is always risky to experiment with new things where we might lack information (“ambiguity”).

We seem to want to persist in using the tried financial technology that was used by our grandparents—Savings & Fixed Deposits—even though there may be memories of major economic dislocations in your grandparents’ times.

Strangely, we are very happy to adopt the newest smart phones, the latest kind of computers or automotive technology.  We do see rapid progress in those areas.  But progress in financial technology and how we invest our hard earned cash is another matter altogether.

As a risk-averse investor we might tend to put our money into “safe” investments such as government bonds and bank deposits, as opposed to more volatile investments such …

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