Bias Question

Bison Services announced their third quarter earnings last week. The earnings were 6% greater than expected. Jill Hoover and Charles Kershaw are both following the stock. Hoover is an overconfident investor. Kershaw is a stock analyst who uses anchoring to form his expectations of earnings. Which of the following is the most likely scenario in the future? A) Both Hoover and Kershaw will be pleased by the subsequent movements in Bison stock. B) Hoover will be disappointed by the subsequent movements in Bison stock and Kershaw will be pleased by the subsequent movements in Bison stock. C) Hoover will be pleased by the subsequent movements in Bison stock and Kershaw will be disappointed by the subsequent movements in Bison stock.

B

B

B

B

Your answer: C was incorrect. The correct answer was B) Hoover will be disappointed by the subsequent movements in Bison stock and Kershaw will be pleased by the subsequent movements in Bison stock. When overconfident investors revise their forecasts based on new information, they tend to overestimate the impact. As an overconfident investor, Hoover will be disappointed by the subsequent movements in Bison stock because of her initial overoptimism after the earnings announcement. Investors who use anchoring tend to underestimate the impact of new information because they are anchored in their old beliefs. Kershaw will be pleased by the subsequent movements in Bison stock because he will have initially underestimated the impact of the positive earnings announcement.

I would have choosen C as well. Thanks for posting this one.

Yeah I misread/misunderstood the time frame on this one. Whether they are disappointed/please right after the earnings, or farther in the future, etc. Tricky one!