CFA Level I · CFA Level I Exam · The Behavioral Biases of Individuals
Which statement about emotional biases is most accurate?
Emotional biases arise from feelings and impulses rather than conscious reasoning, so they are difficult to correct and advisers usually adapt portfolios to them. Cognitive errors from faulty reasoning respond better to information and education, which is why the other statements are inaccurate.
- AThey are generally easy to correct with better information
- BThey arise from feelings and are usually adapted to rather than correctedCorrect
- CThey stem mainly from faulty reasoning and memory errors
Explanation
Emotional biases originate in impulse and intuition rather than conscious reasoning, so they are hard to correct and advisers typically adapt to them. Cognitive errors, in contrast, come from faulty reasoning or memory and are more amenable to correction through information and education.
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