Which Heuristic Is It?

CFA Level III
#21

For the sake of new #2 pencils for MGG…what is the answer?

#22

PJStyles Wrote: ------------------------------------------------------- > A client says, “We don’t want to lose money, so > please wait to sell until it comes back” > > a) Regret > b) Anchoring > c) Loss Aversion > d) Overconfidence > > Curious to know what you guys would respond to > this and why. I’ll provide the answer after a few > replies. I would say “a” regret. I remember reading somewhere that fear of regret makes investors keep losing positions open

#23

Ok its loss Aversion I looked it up

#24

Loss aversion = reluctance to accept a loss ~ A stock may be down considerably from purchase price, but the investor holds on to it hoping it will recover. Regret Minimization = two common situations 1) Investor tends to stay with comforatable investments 2) Rather than sell profitable investments, investors may tend to use their cash flows, for living expenses.

#25

Okay… the reason I brought this question up is that I answered it as LOSS AVERSION but the answer according to Schweser on Page 281 Question #5 is B - Anchoring. How on earth did Schweser come up with Anchoring as the answer??? Here’s their explanation: “Anchoring for an individual investor refers to a data point or other information that incorrectly influences a decision. It can also mean literally grabbing onto something when faced with uncertainty. Regret is the feeling in hindsight associated with making a bad decision. Overconfidence is when people place too much confidence in their ability to predict. Loss aversion refers to the individual’s reluctance to accept a loss and can also lead to risk seeking behaviour” This just doesn’t seem right to me, particular when on page 161 of the Schweser notes at the very bottom it states: "Loss aversion refers to the individual’s reluctance to accept a loss. A stock may be down considerably from its purchase price, but the investor holds on to it hoping that it will recover. " That statement was in the Frame Dependence section of the notes on Page 161. What gives???

#26

NO Fing way that in anchoring.

#27

My day is ruined

#28

if you look at the thread i posted - i included in there that although schweser said anchoring, they later changed it to loss aversion. i found that by searching the teaching live sessions (or whatever they’re called)…

#29

YEAH!!!

#30

Wish they would have put that correction in their damn Errata release. I didn’t see it on there… but maybe I missed it.

#31

MGG, I buy you some new #2 penciles. Good thread!!!

#32

.5mm lead please