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FRM Part II · FRM Exam Part II · Risk Identification

A bank runs scenario workshops and finds that participants anchor on the first loss estimate offered by a senior executive, and that estimates cluster near recent internal losses. Which action most directly addresses these biases?

A structured process with independent initial estimates, independent challenge from the risk function, and use of external loss data best counters anchoring and availability bias. It broadens the information base and prevents a senior voice or recent internal losses from dominating the severity assessment.

  1. AUse a structured process with independent initial estimates, challenge from risk functions, and reference to external loss dataCorrect
  2. BLimit participation to the business line head who owns the process
  3. CShorten the workshop so participants have less time to disagree
  4. DReplace all severity estimates with the average of the bank's past three years of losses

Explanation

Anchoring and availability bias are reduced by collecting independent estimates before discussion, independent challenge, and external data that extends beyond recent experience. Restricting participants or using recent averages worsens the biases.

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