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

Mr. Raghunath Iyer, 52, invested Rs 10 lakh in a sector fund after his colleague earned high returns there. He now refuses to look at any research suggesting the sector is overvalued and reads only articles supporting his choice. He also states he is '90% sure' he will outperform the market, though his past record is average. Which pair of biases is most clearly shown?

The pair is confirmation bias and overconfidence. He selectively reads material that supports his sector choice and ignores contrary research, which is confirmation bias, while his 90% certainty of outperforming despite an average record reflects overconfidence in his own ability.

  1. AConfirmation bias and overconfidenceCorrect
  2. BAnchoring and mental accounting
  3. CHindsight bias and endowment effect
  4. DAvailability bias and framing

Explanation

Seeking only supportive information is confirmation bias. Rating his own success chance far above what his record supports is overconfidence. Anchoring, mental accounting, endowment, hindsight and framing are not the central behaviours described.

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