So after a run up in the market: Aversion to ambiguity says P(increase) > 0.5, so investors will enter the market Gambler’s Falacy says P(decrease) > 0.5, so investors will take contrarian stance
LOL…yeah…on second reading…DOH!!!
so this isn’t mentioned at all in schweser, huh? that’s a bit frightening.
I can see why it’s not mentioned in Schweser, because the LOS directly references representativeness, overconfidence, anchoring and adjustment, and aversion to ambiguity. But if you read the LOS closely the door is open that this gamblers falacy could be slipped in. B@stards!!
then they put it on their practice tests? awesome. oh well. at least we caught it.
It seems like this practice exam was the “everything that we didn’t put in our study notes” version. They even threw in a question regarding their errata on floating rate swap durations.
Which exam is that McLeod81
Volume 2 Exam 2 PM
yup. this exam put me in a bad mood yesterday. just frustrating.
seems like there’s a bunch of topical areas that are a crazy combination of factors. i just have no idea what to expect. i’ve done some exams but not totally sure where they come from… are these strange exams actually past CFAI exams? because i actually do admit that the level 2 exam was quite straight-forward. the schweser wording/thinking is a big problem
I think Schweser was probably looking through their stuff and were like “sh!t, we forgot to put all this stuff in our notes. Let’s just throw it in a practice exam so it’s out there.” This would explain the very high concentration of non-covered material in this exam. Also, this is sequentially one of the last exams in their series.
Hahahaha…I did that one Tuesday afternoon…I have a big mark in my book beside the question WTF IS THIS!!! I knew it was sounding familiar. Not a good sign that I didn’t recognize it right away though.
McLeod- do you find the Schweser book 2 exams worthwhile?
I guess so, they’re better than Q-bank anyways. It’s always good to get a high volume of questions across. There’s a lot of mistakes (some large sections missing) from some of the am exams though, which is annoying as hell. I suppose they’re still decent practice though.
A lot of the multiple choice answers are also wrong on the score sheet, particularly in the ethics sections. But they tend to be right in the explanations. Unless there’s errata. Think one of my scores ending up about 10% higher than when I initially graded it.
ng30 Wrote: ------------------------------------------------------- > A lot of the multiple choice answers are also > wrong on the score sheet, particularly in the > ethics sections. But they tend to be right in the > explanations. Unless there’s errata. Think one > of my scores ending up about 10% higher than when > I initially graded it. yeah. i think the best thing to do is input it online. my score ended up being 3% lower. errata in the freaking answer key. wtf is wrong with these guys this year?
McLeod81 Wrote: ------------------------------------------------------- > The question explains it as, “if a coin flip turns > up heads 10 straight times, people begin to over > estimate the odds of the next flip being tails.” > or, “expecting a reversal to occur after a sector > continually increases in value.” It makes sense, > but I haven’t noticed the term. I won’t forget this - just thinking about how many times I have taken it at the roulette table because of it.
hh Wrote: ------------------------------------------------------- > McLeod81 Wrote: > -------------------------------------------------- > ----- > > The question explains it as, “if a coin flip > turns > > up heads 10 straight times, people begin to > over > > estimate the odds of the next flip being tails.” > > > or, “expecting a reversal to occur after a > sector > > continually increases in value.” It makes > sense, > > but I haven’t noticed the term. > > > I won’t forget this - just thinking about how many > times I have taken it at the roulette table > because of it. LOL Did you know that when the casinos added the signs that tell you the last 20-some spins of the roulette wheel, they had MANY MANY more people come and play at the roulette table? Smart guys.
Let me continue this thread, as it could be a good topic to start discussing all kinds of behavioral biases… aversion to ambiguity? I am not connecting this with the Gambler’s fallacy… I thought, aversion to ambiguity is simply aversion to unknown… one would always prefer a certain outcome to uncertain… a side note: not always do we choose a certain outcome… 1) $500 certain win 2) win nothing or $1000 -if there is a bag of black and red chips with unknown proportion, then people tend to choose option 1… - fear of unknown! -however, if the bag contains 50/50 black v red chips, then people tend to choose 2… now let’s consider this example. You have an option to choose between the following: 1) choose a certain $500 win or gamble and you might get either $750 or $250… 2) you just won $500… you have an option to enter into a lottery and win or lose $250… People go with the second choice… the two options lead to exact same outcome… but we see these situations differently… we are not risk averse anymore! our risk tolerance changes just like that… due to our frame dependence…
McLeod, with regards to the sharpe ratio formula: I believe the formula is Correlation of asset and portfolio*Sharpe ratio of old portfolio