A client says, “We don’t want to lose money, so please wait to sell until it comes back” a) Regret b) Anchoring c) Loss Aversion d) Overconfidence Curious to know what you guys would respond to this and why. I’ll provide the answer after a few replies.
Regret~I would say they want to avoid feeling regret if they sell and then the stock comes back up. Loss Aversion~They stick with a looser to avoid a loss. *Head slams into desk*
Anchoring? Because they think the stock need to go back to its “original” price.
Loss aversion - they don’t want to take losses, would rather wait and hope it would come back up?
Not Anchoring, Anchoring usually has an orginal forecast… then news… then a new forecast that is biased away from the news…
Mr.Good.Guy Wrote: ------------------------------------------------------- > Not Anchoring, Anchoring usually has an orginal > forecast… then news… then a new forecast that > is biased away from the news… I thought it doesn’t have to be new/forcast…as long as it is some kind of reference point.
I don’t think it has to be a new forcast… But the way that question is Framed (No pun intended) I dont think it lends itself to Anchoring. But who knows PJ the answer please!
this question was discussed before in another thread. you could make a case for either loss aversion or regret based on it. but not anchoring (for reasons stated above) and not overconfidence because the definition of overconfidence bias just doesn’t fit here. as WS will soon point out - this is a tyipcal schweser ‘frame bias’ question.
strikershank Wrote: ------------------------------------------------------- > > as WS will soon point out - this is a tyipcal > schweser ‘frame bias’ question. I will stay mute this time, 
I am putting my money on Regret
COME ON REGRET!!! Daddy needs a new pair of # 2 pencils!!!
I am still leaning toward Anchoring. “so please wait to sell until it comes back”, comes back to the original price…this is why I am banking on Anchoring.
Isn’t the answer in the question? “We don’t want to lose money”. I would go with loss aversion. Also, one of the LOSs in reading 8 is: Explain how loss aversion can result in investors’ willingness to hold on to deteriorating investment positions
WS - check the definition of anchoring. Anchoring has to do with not incorporating new information into your forecast. The answer to this quesiton cannot be anchoring as no new information has been presented. http://www.analystforum.com/phorums/read.php?13,662003,662040#msg-662040
Yea true In a couple spot they lump loss aversion and regret into the same paragraph. I saw one definition for loss aversion Investors are willing to risk taking a large future loss instead of a sure thing small present loss.
strikershank Wrote: ------------------------------------------------------- > WS - check the definition of anchoring. Anchoring > has to do with not incorporating new information > into your forecast. > > The answer to this quesiton cannot be anchoring as > no new information has been presented. > > > http://www.analystforum.com/phorums/read.php?13,66 > 2003,662040#msg-662040 Hmmm…I know the definition of Anchoring. However, I would argue that the new information in the case is the new lower stock price…the people in this problem is not able to incorporate the new stock price(new information), they are anchored on the old(previouse) stock price as their reference point.
If the answer to this question in Anchoring I may stop studying all together and just wing it.
loss aversion, anchoring is not even close. you may say regret but still there’s hope here, i can’t see signs of regret.
Its funny PJStyles you put this up…I did the same vignette last night and actually got this one wrong and the one after this…I wanted to do the same thing to see what people think…I opted for regret… the one after this question, i remember the answer was the third one…least expected…related to heuristic and the question was they (the couple) buys the company 'cos it is a good company…I sort of got my head around it after I saw the answer…can you post the question if you have the book on you. thanks
Mr.Good.Guy Wrote: ------------------------------------------------------- > If the answer to this question in Anchoring I may > stop studying all together and just wing it. This can work well for SS 3 and 4…but I hear you!