Schweser Book 1, page 201, Question #2

Which of the following behavioral biases results in inacation as investors hold on to losers too long? A. Rigid Views B. Correlation emotions with the market C. Price target revisions D. Process Vs. outcome. The provided answer was B. Why can’t be it aslo be A? Thanks!

Rigid views would be more a sympton of anchoring (that is, investors don’t adjust new information into past expectations)

Yeah exactly. I am so rigid that I won’t adjust my thinking that even my stocks are losing money but I will still hold on to it because of my ridig view of this is a “winning stock”. This can result in hold on to loser too long, right?

Anchoring is more along the lines of not wanting to ajdust expectations. Holding onto a loser to long stems more from emotionally not wanting to admit you were wrong; conversly selling to quickly is often done to prove you were right. Now, WS, you are on the right path, because how you described anchoring can lead to loss aversion which can lead to poor portfolio performance is more along the lines of a CFA answer rather than a single multiple choice schweser answer.

Correlation emotions with the market is for when someone’s trading activity rise when the market is growing and decrease (see stop) when we go on a recession. You can see as as rising with gains, decreasing with losses Rigid views is not fully incorporating new information because of previous positions. Yes you can hold to loser for some time because of rigid view, but in the question it is specified 'hold on to losers --too long–? ’

> which can lead to poor portfolio performance is > more along the lines of a CFA answer rather than a > single multiple choice schweser answer. I think I know the answer now…CFA way. I guess I will let go. My thinking is that both answer A&B can lead to the end result of “hold on to loser too long”. Thanks