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

Mr. Raghav Iyer, 52, a Pune-based IT manager, has 70% of his financial assets in shares of his own employer because he 'knows the company better than any other'. He ignores analyst reports showing sector headwinds and notes only news that supports his view. Which pair of biases is most clearly shown?

Raghav shows familiarity (with overconfidence) bias by concentrating in his employer's shares because he feels he knows them, and confirmation bias by noticing only news that supports his view while ignoring negative analyst reports.

  1. AMental accounting and hindsight bias
  2. BFamiliarity/overconfidence bias and confirmation biasCorrect
  3. CAnchoring and regret aversion
  4. DAvailability bias and endowment effect only

Explanation

Preferring the employer's stock because it feels known is familiarity bias, reinforced by overconfidence in his knowledge. Selecting only supportive news while ignoring contrary reports is confirmation bias. Mental accounting, hindsight and regret aversion are not the central features described.

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