"The best explanation of the bizarre trading may be the same one that behavioural economists use to explain the allure of lottery tickets. Small probabilities of big gains do strange things to people’s risk appetites. If the chance of a gain moves from, say, 51 to 52 per cent, most people will pay just a bit more to invest. But if you move the probability from 0 to 1 per cent, some investors (or punters, if you prefer) will stump up big. This is the “possibility effect,” and it is ugly when it goes into reverse. Those who held on to BlackBerry until Friday were emotionally attached to the big gain they could make if BlackBerry fixed things. This sort of hope cannot be extinguished by strong evidence – only ironclad proof. The lesson is to be careful about buying a beat up stock because “the worst is priced in”. You may be co-investing with dangerous optimists."
What does this do for risk. It suggests that a large right-tail is really valuable or a portfolio with more risk assets can be valued more highly than one with modest risk (and opportunity). Can this be back by research and modelled?