As an improvement over the existing risk profiling techniques, factors such as lifetime financial experiences, past decisions and the peer group have a considerable influence on an investor’s risk profile

When faced with uncertainty, we tend to assign subjective probabilities to the likelihood of an outcome. We depend on some heuristic (short-cut) to assign these probabilities. While these heuristics may generally be useful, they lead to severe and systematic errors. For instance, the distance of an object is determined by how clearly it can be seen.