Sign up  |  Log in

2012 Morning Session - Behavioral Finance question - 4 A

Hi all,

so the question looked easy but the answer was far from what i expected. 

can you have a look at it and tell me what you think: 

The question is as follows: 

Identify the behavioral bias that each diagnostic question is most likely to reveal. Choice is between anchoring, hindsight, regret aversion, representativeness and status quo

Would you sell a recent equity investment
following a management announcement of a
significant decline in the expected growth rate of
revenue?

for me the answer was Staus Quo - the client will not change his position even if he recieves negative information about his asset. 

the exam solution was - Anchoring. 

both answers can work don’t you think?

A clear and personalized study plan is here! Schweser's upgraded content and redesigned study platform are exactly what you need to pass the Level III exam. Save 10% when you order a Premium Package for a limited time.

Totally agree with you. I read that and immediately thought status quo.

I suppose you could make a case for Anchoring. But for me I’d have to see something like “the stock increased prior to the announcement and then declined…” in order to jump to anchoring. 

Each diagnostic question is designed to reveal a different bias- status quo was used for q2 

so that leaves anchoring - tendency to continue using info used in the past - as one is anchored to the previous growth rate