It is a question from CFAI exam 2003: Mr. Bavier says “I have been very pleased with returns from the Petrie stock over the past two years and I am certain that it will be a superior performer in the future.” “I am pleased with the returns from the Petrie stock because I have specific uses for that money. For that reason, I certainly want the Trust to continue owning the Petrie stock.” Identify which principle of behavioral finance is most consistent with each of Bavier’s two statements. For first statement, the correct answer is overconfidence. But I think representativeness is also OK. Anybody has any comments? Thank you in advance.
I think the trigger word is “certain” as it would indicate that the client is overconfident in his ability to forecast that it will be a superior performer. If you take out the words “and I am certain that” i think you could argue representativeness For the second, self-control?
Jscott24 Wrote: ------------------------------------------------------- > I think the trigger word is “certain” as it would > indicate that the client is overconfident in his > ability to forecast that it will be a superior > performer. > > If you take out the words “and I am certain that” > i think you could argue representativeness > > For the second, self-control? Jscott24, Thank you. Haha…it is a little tricky. For the second, correct answer is Mental Accounting. I don’t remember this term. Probably, it is only included in old CFAI curriculum.