CFA Level I · CFA Level I Exam · The Behavioral Biases of Individuals
A portfolio manager reads only research articles supporting her bullish view on a energy stock and ignores reports that point to weakening demand. This behavior is most likely an example of:
This is most likely confirmation bias. The manager selectively gathers and weighs information that supports her existing bullish belief while overlooking evidence that contradicts it. Hindsight bias relates to past outcomes, and representativeness relates to classifying by resemblance.
- AConfirmation biasCorrect
- BHindsight bias
- CRepresentativeness bias
Explanation
Confirmation bias is the tendency to seek and favor information that supports an existing belief while discounting contrary evidence. Hindsight bias concerns viewing past events as predictable. Representativeness classifies new information by resemblance to past experiences.
Did you get it right without looking?
One question tells you little. A timed set on The Behavioral Biases of Individuals shows your real accuracy, how long you take and where you lose marks.
More The Behavioral Biases of Individuals questions
- An adviser notes that a client, after a strong run of gains in her account, begins taking larger and riskier positions, reasoning that she i…
- Which view of market prices is most consistent with the behavioral finance perspective on markets?
- Which description of the aim of behavioral finance is most accurate?
- An investor bought shares in a shipping company after reading a bullish report. Since then, several analysts have downgraded the stock, but …
- After a decline in a stock, an investor who owns it pays attention to news about the company's long-term strengths, but she would never have…
- An analyst values a company at 40 per share. After the firm reports earnings that are clearly far above forecasts, the analyst raises the es…