CFA Mock 2012

Shouldnt this reveal representativeness bias?

Would you sell a recet equity investment following a management announcement of a signifiant decline in the expected growth of the revenue?

This would reveal whether the individual will give undue weight to new information and sell the investment (representativeness bias). The answer is anchoring bias.

Any thoughts?

That’s what I thought too. I guess anchoring bias would be to adjust your position after news comes out. but I always thought of anchoring of moving your target in regards to your arbitrary original anchor. for representative bias, I think of someone who reacts on overly simplistic news rather than thinking the action through and without doing thorough research.

Yes exactly my thoughts! maybe I a missing something

I thought the same thing. But, I can def see the case for anchoring…and given that the change is something substantial and related to fundamentals, I can see anchoring as being the best answer. It’s like - the company just came out with some fundamentally bad news…are you going to hold on to your prior, favorable view? I think it would me more of a test of representativeness if the announcement was relatively immaterial or irrelevant in the big picture. In that case, if you wouldn’t change your view I don’t think it would be anchoring, but if you did, it would be representativeness.

Can’t find any non-current 5 mock (what terms do you guys google?), but it might not be representative because it’s not like he’s basing his expectation on short trends, I mean the management specific announces it. Most of the time we see the questions with representative bias it’s that they’re chasing short trends ignoring longer term data set. I think that could be the best. Also is he selling from a reference point maybe, he believes that it’s 5.50, but now he see news he adjusts and sell.

Agree with Keep.

I think it would depend on the actual answer to the question. Is the individual answers YES, that is clear sign of representative bias, but if he anwers NO it may be evidence of anchoring.

If its no then its anchoring and could be regret aversion.