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

Mr. Iyer, 58, holds 70% of his portfolio in shares of his employer, a listed Indian firm, because he feels he knows the company well. His adviser wants to address the underlying bias first. Which bias best explains his concentration?

Familiarity bias combined with overconfidence best explains it. Mr. Iyer favours his employer's shares because they feel known and safe, overestimating his insight, which leads to dangerous concentration in one stock tied to his job and income.

  1. AMental accounting
  2. BFamiliarity bias with overconfidence in own knowledgeCorrect
  3. CHindsight bias
  4. DStatus quo bias due to inertia only

Explanation

Preferring a known company and believing that knowledge reduces risk is familiarity bias, reinforced by overconfidence. Mental accounting concerns separating money into buckets, and hindsight bias concerns believing past events were predictable.

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