Which of the following most likely explains Tom Heggins’s behavior in investment decisions? A) Tom uses anchoring to assess his skills. B) Tom uses a top-down approach to assess his skills. C) Tom uses the ceteris-paribus heuristic to assess his skills. Your answer: A was incorrect. The correct answer was B) Tom uses a top-down approach to assess his skills. Tom likely uses a top-down approach to assess his skills. Overconfident individuals will presume that because they are successful in one area of their life, they can be successful in other areas as well. (Study Session 3, LOS 7.a) My question is how is being overconfident considered a “top-down” approach? My reasoning was that since he is overconfident he will “give disproportionate weight” to him being able to replicate his past success. Can anyone argue for answer B? Thanks-
Perhaps if we knew what his behavior in investment decisions was than we could help you out more.
He is just way overconfident, not much more to it: Tom Heggins: “In the past five years, I have consistently outperformed the market averages in my stock portfolio. It really does not take a genius to beat a market average, but I am proud to say that I have beaten the market averages by at least 2 percent each year and have not once lost money. I would continue managing my portfolio myself because I know I could keep beating the averages, but with a new baby on the way and a promotion to Senior Vice President at my technology firm, I just don’t have the time.”
May be the word “beating averages” to do with something the Broadmarket or aggregate approach - something like macro. Just the way I’m thinking, after knowing the answer. Not sure.