NISM Certifications · NISM-Series-X-B: Investment Adviser (Level 2) · Basics of Behavioural Finance
Ms. Meera, a client, inherited shares of her father's company and refuses to sell them even though they form 60% of her portfolio and she would never buy them at the current price. Which pair of biases best explains her stance?
Endowment effect and status quo bias best explain her stance. She values the inherited shares more because she owns them, and prefers leaving the concentrated holding unchanged, even though she would not buy them at the current price. The other pairs relate to recency, framing or skill attribution instead.
- AEndowment effect and status quo biasCorrect
- BRecency bias and hindsight bias
- CFraming and gambler's fallacy
- DSelf-attribution and illusion of control
Explanation
Valuing an asset more simply because one owns it is the endowment effect, and preferring to leave the holding unchanged is status quo bias. Her unwillingness to buy it at today's price yet keep it shows exactly this. The other pairs concern recent data, presentation or skill attribution, not ownership inertia.
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