I have some doubts, perhaps because this is in cfa but not in schweser: in cfa, in frame dependence, they also mention: - concurrent decisions (ignoring that some events happen at the same time?) - hedonic editing (you account for each loss and each win separately, isntead of looking at the aggregate result) - cognitive and emotional aspects (feelings) It seems that house money effect would be included in “cognitive and emotional aspects”. What do you think? By the way, have you seen any example / question / past exam where these 3 are mentioned? thx
Wow… haven’t seen this material at all… glad you posted this, will have to look these up.
Would itn’t be in the section that happened to become optional …? (page 92 up to end or reading 13)
Those are more the ‘broad’ term descriptions I believe. The House-Money effect and mental accounting might fit under Hedonic Editing whereas Regret or Loss Aversion might go under Cognitive and Emotional Aspets and maybe Anchoring under Concurrent Decisions.
Can we dig up some more optional stuff, I’d just love to get my hands on some extra CFA stuff? I gotta tell you I’m getting bored with reading about loss aversion. My favorite is the snake-bite effect!
isn’t there a donkey punch dilemma as well that’s in the curriculum?
no but a dirty sanchez dilemma…
just to confirm: these 3 things I mentioned above are not in the pages that should be optional. Actually they are from reading 8 (“Frame dependence, the second theme”) schweser only talks about loss aversion, self control, regret (avoidance) and money illusion actually, please correct me if I am wrong: house money effect appears in some of previous exams (essay) and in cfa text this year, but is nowhere in schweser, right? thx
I need clarification on this… I see “house effect”, “Snake bite effect” etc… Haven’t seen any of these terms in the Schweser notes… Are these optional? Can someone explain them please… Thanks PJstyles
snake bit effect is not in this year´s curriculum (schweser of cfa) house money effect: - not in schweser - yes in cfa (as bigwilly said in other post, this is the more risk aversion you show when instead of your own money you are playing with your existing gains) recallability: - not in cfa or schweser IN BEHAVIORAL FINANCE for private investors - yes in cfa and schweser AS PSYCHOLOGICAL TRAP analysts face when forecasting
Okay… house money effect is easy to remember… what others are required as part of the LOS that schweser didn’t cover?
OOOO Tricky… So If they ask for Behavorial finance and you put say Recallability vs Snake-Bit effect then its wrong b/c one is Beh Fina and the other is Psychological/??
No… Schweser specifically states in one of their professor comments in the notes that as long as you use the material from either/or, the answer would have to be given positive marks. CFA won’t distinguish in the question whether they want the answer from one section over the other. Still don’t remember the Snake-Bit effect though in the material… Where is it covered? I’m assuming it’s the same thing as the Recallability trap in that recent disasters effect the investor’s decision making?
it was on the 2006 exam i think… but i know that doesn’t help much.
snake bite effect is clearly last year LOS i think
so if i understand this right House money effect means that an investor is less risk averse when he is reinvesting his gains … ???
yep, investors, who are affected by this bias, don’t see gains the same as original funds, hence they are more likely to gamble with it by taking higher risks (thus less risk averse or higher risk tolerance for this portion of the funds), they think that as long as they don’t lose more than they started with they are in a good shape
does this mean that once they loose this "house money " they go back to being risk averse ?? hmm …
if you get 100, it doesnt mean your risk tolerance will ‘increase’ by 100, you might think you can take more risk and lose 200, after you are -100, you will start to take more risk as you are loss averse, after that it is all downhill
agree with csk house money effect may provoke loss aversion after unsuccessful gamble, this may lead to even higher risks in hopes to recapture your losses, and may lead to even more losses, this can lead to severe regret, recallability trap and also cause frame dependence (this painfull expirience will be framed in investors head), and after all of that our Joe investor may never invest in stocks again