Julia Rees: The impact of familiarity bias

If you ask a UK financial adviser whether he or she would invest primarily in Italian stocks and bonds, the answer is always the same: no way! Ask the same question in Italy and the answer is usually, "Si, certo!"  This simple comparison reveals a widely documented bias in the way people invest. Investors often favour familiar, local markets, which they deem to be less risky even if they are not. This familiarity bias turns out to be quite risky and can create large, unintended risk concentrations. Even professional investors are vulnerable.   Another way we see familiarity bias at pl...