CFA Level I · CFA Level I Exam · Introduction to Financial Statement Modeling
An analyst builds a revenue forecast by starting from the company's recent growth rate and adjusting it only slightly, even though industry data point to a sharp slowdown. This behavior is best described as:
This is anchoring bias. The analyst fixes on the recent growth rate as a reference point and adjusts too little despite evidence of a slowdown. Hindsight bias relates to past outcomes, and rational updating would move the forecast more fully toward the new industry information.
- Aanchoring biasCorrect
- Bhindsight bias
- Crecency-free rationality
Explanation
Anchoring occurs when an analyst fixes on an initial reference value, here the recent growth rate, and under-adjusts for new information such as the industry slowdown. Hindsight bias concerns judging past events as predictable after the fact. 'Recency-free rationality' is not a recognized bias and describes unbiased updating.
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