In the game of blackjack, you can ‘double down’ on a hand by doubling your bet for one more card from the dealer.  (When playing blackjack, your goal is to create a hand that is as close as possible to 21 without going over)A  This action allows you to take additional risk for an immediate payoff.  Within the community of people who enjoy the game of blackjack, most will tell you that it is advantageous to double down on an eleven, or possibly a ten.  The principal reason for this …

One of the trends that many people experience in the world of investing is a noted tendency to become ‘gun shy’ when they experience volatility in their investments.  The reason for this is because our psychological makeup is much more afraid of loss than joyful over gains.  This leads many people to either become irrationally risk averse, or to take risks that they are not aware of in a desire to achieve safety.  The problem this creates is that fear of loss can make people blind to the opportunity for …

Most people who have spent any amount of time around college towns or night clubs are familiar with the phrase “beer goggles.”A  Simply put, this phrase refers to a general tendency for people who have been drinking alcohol excessively to develop highly distorted perceptions of other people’s attractiveness.  In these situations, many people find themselves making romantic advances toward people whom they would not be interested in if they were sober.
Fortunately, most people mature with age and grow out of the propensity to don “Beer Goggles” when finding their spouse.  …

One of the concepts that is prevalent in economics is the notion of moral hazard.  Generally speaking, a moral hazard is created when one party in a transaction is shielded from risk because of government protection, or access to information that the other party lacks.  This concept has received a lot of media attention recently, because of the financial crisis involving subprime debt and credit default swaps.
The way that the moral hazard plays out in the financial sector is that the government implicitly shields financial institutions from bankruptcy based on …

The recent financial turmoil in the global economy has caused many people to adopt a dour perspective on the state of financial responsibility in the nation, and across the world.  Much of this cynicism is certainly well deserved, as there were many governments enforcing irresponsible regulations, banks making irresponsible loans, and people taking on an irresponsible amount of debt.
However, it is important to avoid overlooking the fact that there are many people who have remained very fiscally responsible throughout all of this financial silliness that has erupted recently.  The dynamics …

Reading the title of this article probably creates a sense of confusion because of the apparent paradox of being ‘cautiously bold.’A  After all, acting with caution and acting with boldness are often contrary to one another.  The cautious person generally seeks to minimize risk for the sake of stability.  The bold person generally seeks to maximize the return that they capture.  So how do we blend these two characteristics into a workable philosophy?
The way to fully understand caution and boldness is by viewing them as a balanced equilibrium, instead of …

One of the more difficult things that each of us will encounter in our lives is the juxtaposition of what we know against what we think we know.  The reason why this creates difficulty is because our own perception of our own knowledge (i.e. what we think we know) frequently exceeds what we really know by a significant margin.  Furthermore, this phenomenon seems to expand as our knowledge base increases.  This produces the unfortunate effect of creating an intellectual elite that over-estimates the depth and scope of their own knowledge …

In the world of business, life, and investing there are many risks present.  The traditional view of risk is the probability of suffering a loss of value on your investment.  This is a very significant form of risk, but there are other equally important factors that must be considered for a full picture of risk to be formed.
Another kind of risk to be considered is the risk that your ‘safe’ investment will produce low returns that do not keep pace with inflation or do not make you any wealthier.  Preservation …