I am thinking of doing a consolidated thread on questions on behavioral bias.
In order to prevent framing bias in the answer. Some questions I would not list down the choices
Feel free to contribute questions you think it is tricky or hard.
“Sometimes investor’s interpretation of a particular outcome is largely affected by the outcome” What bias?
An employee always hold position in company stock despite few years of downturns and volatility. He mentioned that he still believe in company’s favourable prospects. (Confirmation bias , Illusion of control or representative)
99% sure that’s Hindsight Bias. Looking backwards, the outcome appears to be 20/20.
Tricky one. I saw a case for each of the three choices, but I think the strongest one is for Illusion of Control. Despite several years of downturn and volatility for this company’s stock, indicating that it was not received as a “good, strong, solid” security in the general marketplace, based upon inside knowledge and proximity to the company that employee felt as if he/she had some degree of control in terms of how the stock’s price would move in the future.
Which bias is this - " one of my clients is quite young and inherited a large sum of money. even though he has little investment exp and doesnt know much abt portfolio theory he is quite willing to make investments or change his allocation based on small amount of info. I cant tell you how many times he has said that he heard a wall street talk show person say this or that and it really resonated with him, so it made sense"
I guess question number 1 is easy when everyone mentioned hindsight bias
Question 2 is tricky
The anwer given is confirmation bias,the reason given is
he believe in company propsects but is ignoring the negative information where there are several years of downturn and volatility. The reasons given by you all for illusion of control do make sense in a certain way.
Do you all agree with the reason given for confirmation bias?
The question posted by cfa_student 29…I understand the reasoning for availability bias, am thinking can it be representativess bias too…example of sample size neglect…new information overweight on sample size that is too small. Any thoughts?
First reading 2) can def make a case for each one. Originally I thought illusion of control. But funny - the reasoning they give for confirmation was basically the argument I was thinking to make for representativeness. Making a call (or having an opinion) on a stock based on a small amount (sample) of info relative to all information available (population) - ie sample size neglect. Like the “good company-good stock” example someone else posted…which was representativeness. Tricky cfai…
Bilal, I thought it this way… I know my company is a good company and a good company is a good investment - so Representative bias Haa, you know it all boils down to how our brain works on that day mate Good luck!