Longshot Bias
Longshot bias describes a tendency for market participants in some forecasting or wagering environments to overvalue low probability outcomes relative to their underlying likelihood.
Why it matters to you
Very cheap contracts can look attractive because the potential percentage return is enormous. For example: Buy at: $0.05 Potential settlement: $1 That looks spectacular. But if the actual probability is only 2%, paying 5% implied probability may still represent poor value. A huge potential return does not automatically mean a good trade.
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