2012 Morning Session - Behavioral Finance question - 4 A

CFA Level III
#1

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?

#2

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.

#3

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