FRM Part II · FRM Exam Part II · Risk Measurement and Assessment
A bank's scenario analysis workshop asks business experts for the frequency and severity of a cyber-extortion event. The first estimate given by the facilitator was 'about one event every 20 years, with a loss near USD 50 million.' Subsequent expert estimates cluster tightly around those values. Which bias is most likely at work, and what is the best mitigation?
This is anchoring: participants adjust insufficiently from the first number stated. The best mitigation is to elicit estimates independently before group discussion, avoid giving initial reference values, and use structured challenge, such as a Delphi-style process, so that the results reflect individual judgment.
- AAvailability bias; remove all recent events from the discussion
- BAnchoring; collect independent estimates before group discussion and avoid presenting reference values firstCorrect
- COverconfidence only; increase the number of scenarios without changing the process
- DConfirmation bias; rely solely on the internal loss database
Explanation
Estimates clustering around a figure first stated by the facilitator is the signature of anchoring. Gathering individual estimates independently beforehand, and using structured techniques such as Delphi, reduces it. Removing recent events would distort the assessment, and relying solely on internal data worsens the tail data gap.
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