Skip to content

NISM Certifications · NISM-Series-X-B: Investment Adviser (Level 2) · Basics of Behavioural Finance

An investor continues to hold the same portfolio he inherited from his father, even though it is poorly diversified and no longer matches his goals, and says he 'just does not want to change anything'. Which bias is chiefly at work?

Status quo bias is at work. The investor prefers leaving his inherited portfolio unchanged even though it is poorly diversified and misaligned with his goals. Inertia and reluctance to act drive the decision rather than analysis, unlike availability, gambler's fallacy or self-attribution biases.

  1. AStatus quo biasCorrect
  2. BAvailability bias
  3. CGambler's fallacy
  4. DSelf-attribution bias

Explanation

Preferring to leave an existing portfolio unchanged despite mismatch with goals is status quo bias, often reinforced by the endowment effect. Availability bias relies on easily recalled information, gambler's fallacy expects reversals in random sequences, and self-attribution credits successes to own skill. None is described.

Did you get it right without looking?

One question tells you little. A timed set on Basics of Behavioural Finance shows your real accuracy, how long you take and where you lose marks.

Practise Basics of Behavioural FinanceFree diagnostic mock

More Basics of Behavioural Finance questions