Guys and Girls, I need help on this Q Statement 1 : Pension plan participant currently have 90% of their investments in traditional asset classes. Our portfolio management firm has had difficulty getting investors to consider the non-traditional investments that are available through newly introduced exchanged funds" Statement 2 : The recent bubble in technology stock prices resulted in stock valuations not justifiable by even the most optimistic fundamental analysis. However, it was difficult to exploit the stocks’ mispricing because individuals investors kept bidding up price based on their perceptions of the trading of other investors" The question ask to identify the behavioral concept behind these statements. I answer the first with " Aversion to ambiguity" and the second with " Ebullience cycle, as in correlating oneself with the market" The book suggest answers with " status quo bias" and “representativeness” Am I totally on the wrong track or the answer can go both ways?? Thanks guys
sounds to me like you’d still get credit for your answers. Just my opinion.
I put status quo and e-bullience. It’s status quo bias because 90% of the investors are in traditional asset classes, even though there are potential diversification benefits by investing in alternatives.
I put Herding Behavior for the second one…since investors are following other investor’s trading activities in the market…No?
What is the difference between “Ebullience Cycle” & “Herding Behavior” ? Very often, I can not tell the difference between some terms in behavioral finance !