CFA Level III Mock Exam PM - Q10 (behavioral finance)

Q10 - Who is most likely correct concerning how to deal with the ambitious earnings guidance and the behavioral biases of cole & gam’s management team?

According to the answer, the management team has been exhibiting cognitive bias (best solution would be using systematic research approach). This makes sense to me.

My question is what kind of cognitive bias is the management team exhibiting? From my understanding, I interpreted that the management team was exhibiting “Overconfidence” which is an emotional bias. (“They tend to be overconfidence with an inclination to overestimate the outcome”)

Thank you very much

Haven’t read the question but from the way you describe it, it could be illusion of control as it is cognitive

Just answer the question. The question is asking about how to deal with ambitious earnings guidance as an analyst making a recommendation on the company stock. The answer, is stick to the fundamentals and don’t get caught up in the story. The question is not asking how-to, or whether to educate the management team. Or maybe I am thinking about it wrong and just got lucky? :slight_smile: