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

Mr. Raghav bought a stock after reading that a friend doubled his money in a similar sector. He ignored the company's weak financials because the friend's story was easy to recall. Which bias is mainly at work?

The main bias is availability bias. Raghav judged the investment by a vivid, easily recalled story of a friend's gain rather than by analysing the company's weak financials. Anchoring, status quo and endowment effect relate to reference points, inertia and overvaluing owned assets, none of which fits here.

  1. AAvailability biasCorrect
  2. BAnchoring bias
  3. CStatus quo bias
  4. DEndowment effect

Explanation

Availability bias makes people judge likelihood by how easily examples come to mind. The vivid friend's story outweighed analysis of financials. Anchoring relies on an initial reference number, status quo on preferring no change, and the endowment effect on overvaluing owned assets.

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