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FRM Part II · FRM Exam Part II · Risk Identification

During a scenario workshop at a regional bank, business managers estimate the loss from a major payment system outage. The facilitator notices that participants anchor on the largest loss the bank has experienced in the past ten years and rarely propose anything larger. Which bias is most clearly at work, and what is the most appropriate mitigation?

The behaviour is anchoring bias, since participants fix on the bank's largest past loss. The best mitigation is to introduce external loss data and structured prompts so participants consider more severe outcomes, rather than discarding internal data or relying on a single expert.

  1. AAvailability bias; ignore internal loss history completely in the workshop
  2. BAnchoring bias; present external loss data and structured prompts to push participants beyond the internal experienceCorrect
  3. CConfirmation bias; reduce the number of participants to a single expert
  4. DOverconfidence bias; replace the workshop with a purely statistical fit of internal losses

Explanation

Fixing on the largest past internal loss is anchoring. Introducing external loss data and structured challenge helps participants consider more severe outcomes. Ignoring internal data discards useful information, a single expert increases bias, and a purely internal statistical fit would reinforce the same limitation.

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