Skip to content

CFA Level I · CFA Level I Exam · The Behavioral Biases of Individuals

An adviser distinguishes cognitive errors from emotional biases when planning how to mitigate each in a client's IPS review. Which approach is most likely appropriate?

Emotional biases are generally moderated by adapting the plan to them, while cognitive errors, which come from faulty reasoning, can be reduced through better information, education and advice. The distinction guides how strongly an adviser can expect to correct each behavior.

  1. ATreat both types the same way by repeating the same presentation until the client agrees
  2. BModerate emotional biases by adjusting the plan to them, and adapt cognitive errors through better information and educationCorrect
  3. CAccommodate cognitive errors by changing the plan, and correct emotional biases through training

Explanation

Cognitive errors stem from faulty reasoning and can often be reduced with information, education or advice. Emotional biases arise from feelings, so they are harder to correct and are usually accommodated in the plan. The reversed approach in the third option is wrong, and a single approach ignores the difference.

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.

Practise The Behavioral Biases of IndividualsFree diagnostic mock

More The Behavioral Biases of Individuals questions