Behavioral Bias (Identify)

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.

  1. “Sometimes investor’s interpretation of a particular outcome is largely affected by the outcome” What bias?

  2. 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)

  1. Sounds like hindsight

  2. Seems like familiarity, but based on the three choices I would say illusion of control, since working at the company may give him a feeling of control/insight

  1. 99% sure that’s Hindsight Bias. Looking backwards, the outcome appears to be 20/20.

  2. 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.

  1. confirmation bias - illusion of control has to do with employee in an executive position, definitely not representativeness bias
  1. sounds like hindsight

  2. given the choices, i’d say it’s illusion of control. But it could also be endowment bias.

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 vote availability

Hi everyone,

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?

I too thought it was representative bias

So what is the answer and reason given? We can all decipher together and do a reasonable check…

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…

answer given is availability bias

I will not sell any of my company stock bcos I know my company and I believe it has excellent prospects in the future What bias is it


Overconfidence and could be even Representativeness bias?

^^ Sooraj sup mate.

I believe 1st sounds like overconfidence and 2nd like regret aversion (it’s doing bad and he doesn’t want to admit it).

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 :slight_smile: Haa, you know it all boils down to how our brain works on that day mate :slight_smile: Good luck!

Exactly! I believe it all comes down to the options given which we have to pick from. Best of luck too!

Answer given is familiarity and representative bias

representative bias needs a base rate neglect where you totally ignore it due to past experience and base your choice on new info released (stereotype)