CFA Level I · CFA Level I Exam · The Behavioral Biases of Individuals
An investor bought shares in a shipping company after reading a bullish report. Since then, several analysts have downgraded the stock, but the investor reads only articles that support the original view and dismisses the rest as poorly informed. This behavior is best described as:
The behavior is confirmation bias. The investor looks for information that supports the original bullish view and dismisses contradicting analyst downgrades. This is a belief perseverance bias, since the existing belief is protected by filtering evidence, unlike anchoring or mental accounting, which concern reference points and separate money buckets.
- AConfirmation biasCorrect
- BAnchoring and adjustment
- CMental accounting
Explanation
Confirmation bias is a belief perseverance bias in which people seek out information that supports their existing view and discount contradicting evidence. Anchoring is about relying on an initial reference value when estimating, and mental accounting is about treating money in separate buckets. Neither of those describes selective evidence gathering.
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