Very tricky EOC Q on Behavioral Biases (Reading 8)

Thought these were pretty subjective and even unfair.

Question 1: Why is “Gerber believes that the research setbacks are temporary because of ABC’s past success with projects” not an acceptable answer for availability bias?

Question 2: Why is “He expects that ABC will begin Phase Two within a year, and also believes that once Project M goes into Phase Two, ABC’s stock price should reach a new 52-week high of CHF 80” not an acceptable answer for overconfidence? I thought that the emphasis on the exact price was an example of a very narrow range of forecasted values.

Question 5: Again with the 52-week high of CHF 80. I thought this was overconfidence. How is this anchoring? We are never told that this was his original forecast that he is sticking to despite new information.

Question 10: Why is regret aversion not exhibited? Jordan explains her actions by saying “the portfolio will not be able to take advantage of the reverseion to the mean if she sells certain losing positions.” Isn’t this error of commission?


because of the way they word the question . It isn’t worded that he has a limited search capability , recallability is limited to some events only , or he has a narrow range of experience or it resonates for him.

It is only shown that he chooses to not consider current info about the stock and justifies it by saying they have done well in the past. It is clearly belief perseverance and not an information processing one.

choosing not to consider certain info is availability bias?

I expressed myself horribly . I should have said the following:

Availability bias is a cognitive error , information processing bias. People weight the probabilities of outcomes depending on 1. How quickly they can retrieve information from memory i.e. retrievability. 2. How efficiently they can search for the category of the event , or how accurate the search set is . 3. what their range of experience with similar situations has been. 4. How well the event resonates with something they already know .

In any case it is a probability weighting process i.e. some sort of statistical judgement . Here there is no talk of weighing probabilities . If the q was talking about availability bias , it could have been worded as "Gerber considered various alternatives that came to his mind about past situations , and then concluded that the research setbacks would not affect the stocik prices . Company XYZ that he recalled , had recently announced setbacks in Phase 3 trials , but went on to have a good year after , so ABC would likewise not suffer "

i.e. the wording would indicate a bias clearly , but would show the bias to be an easily correctable one , if Gerber had known better . such as XYZ had other reasons to shine and ABC was the pits. I mean separate the type of cognitive error . Gerber is merely trying to perpetutate his belief but not quoting any numbers or situations , he is just sticking to his guns . Conservatism .