CFA Level I · CFA Level I Exam · The Behavioral Biases of Individuals
A portfolio manager notices that she keeps adding to positions after reading only research that supports her original view. Which action is most likely to reduce this behavior?
Requiring a documented counter-argument and a colleague's review before each addition is the most effective step. It forces the manager to consider disconfirming evidence, directly countering confirmation bias, a cognitive error that responds well to structured process and information.
- AReview only recent winning positions each quarter
- BRequire a documented counter-argument and a review by a colleague before each additionCorrect
- CReduce the frequency of portfolio reviews to once a year
Explanation
The behavior is confirmation bias, a cognitive error. Forcing consideration of opposing evidence and independent review addresses it. Looking only at winners reinforces bias, and fewer reviews removes the check rather than improving analysis.
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