I would like to know what are the differences amount them? 1. Anchoring trap—an analyst puts too much weight on the first set of information he receives. 2. Status quo trap—an analyst bases predictions on the recent past 3. Representativeness - investors to make incorrect projections based upon stereotypes. Because investors’ perceptions are based upon current or historical information rather than unbiased expectations, stocks can be temporarily mispriced. An example is assuming a stock will perform well in the future because the firm just unexpectedly announced good earnings over the last period. Assuming the good announcement implies good future performance (a winner), investors buy the stock and push its price up. All are decisions based on the past … then what are the differences? Maybe anchoring should be related with the model an analyst developed or the theories or assumptions that is not derived only from the past. but then status quo and representativeness are the same thing? in that all are decisions from past experiences?
what i can understand is that although all of these based action on past events the end results is different ( to account for different situation investors in) 1) anchoring trap- resulted in projection not fully incorporate new info 2) status-quo- resulted in tendency to maintain current portfolio (in dcp) 3) Representativeness- resulted in investors taking action based on cause and effect that happened in the past. assume pattern would repeat. tq
Thanks. It helps.
1 - Analysts don’t adjust their projections in light of new info but remain “anchorer” to their old views 2 - Analysts don’t expect any change from recent past. For example, if inflation has been increasing for the past 2 years at 2%, they expect it to increase at 2% next year 3 - Ignore reversion to mean. Think winners will always be winners, creating overpriced securities.
mik82 Wrote: ------------------------------------------------------- > 1 - Analysts don’t adjust their projections in > light of new info but remain “anchorer” to their > old views > > 2 - Analysts don’t expect any change from recent > past. For example, if inflation has been > increasing for the past 2 years at 2%, they expect > it to increase at 2% next year > > 3 - Ignore reversion to mean. Think winners will > always be winners, creating overpriced securities. Nice explanation