Reading 52: The Behavioral Biases of Individuals

Which of the following best describes the core assumption of traditional finance regarding individuals?

Cognitive errors are primarily due to which of the following?

Which approach is most likely to succeed when trying to mitigate a bias that has both cognitive and emotional elements?

An analyst has maintained a GDP forecast for six months. Despite new negative economic data released today, the analyst barely adjusts the original forecast. This behavior is most consistent with:

Confirmation bias leads market participants to:

A shy man is identified by a group as a librarian rather than a salesperson, despite there being far more salespeople in the population than librarians. This error is an example of:

Which of the following is a form of Representativeness bias?

Illusion of control bias creates a tendency for market participants to:

Hindsight bias is characterized by which of the following?

An investor estimates the earnings of a company will be 2.00 USD per share. After a positive announcement, the investor adjusts the estimate to 2.10 USD, even though the consensus has moved to 2.50 USD. This behavior is best described as:

An investor treats a 5,000 USD bonus as 'found money' and invests it in a high-risk crypto asset, while keeping their salary savings in a low-yield savings account. This is an example of:

In a study of New York taxi drivers, drivers worked longer hours on sunny days (low demand) to hit an income target and quit early on rainy days (high demand) once the target was met. This behavior illustrates:

Framing bias occurs when decisions are affected by:

When presented with a choice between a certain gain and a gamble with a higher expected value, most people choose the certain gain. When presented with a choice between a certain loss and a gamble with a lower expected loss, most people choose the gamble. This reversal in preference demonstrates:

Availability bias leads individuals to estimate probabilities based on:

An investor chooses a mutual fund solely because she saw an advertisement for it yesterday. This is most likely an example of:

Which bias is characterized by feeling more pain from a loss than pleasure from an equal gain?

A loss-averse investor holding a stock that has declined in value is most likely to:

Self-attribution bias, where one takes credit for successes but blames external factors for failures, is a component of:

Prediction overconfidence leads individuals to:

Self-control bias is often manifested as:

Which bias explains why participation rates in retirement plans are significantly higher when enrollment is automatic (opt-out) rather than voluntary (opt-in)?

An individual demands a higher price to sell an asset they own than they would be willing to pay to purchase the same asset. This is an example of:

Regret-aversion bias leads market participants to attach undue weight to:

Herding behavior, where participants go with the consensus, is a form of:

The halo effect, which may explain the overvaluation of growth stocks, is a version of which bias?

Home bias, the tendency to invest heavily in domestic firms, is most likely a result of:

Which bias is classified as a 'Belief Perseverance' cognitive error?

Which bias is classified as an 'Information-Processing' cognitive error?

If a bias is based on unconscious emotion that is difficult to change, it should be regarded as:

A portfolio manager recommends a stock because it fits the description of a 'growth stock', ignoring its deteriorating financials. This analyst is likely suffering from:

An investor refuses to sell a losing stock because selling would confirm that the initial decision was a mistake. This is best described as:

Which bias might cause an investor to trade too much by selling for small gains and holding losers?

To mitigate Self-control bias, an advisor should suggest:

Overconfidence bias is most likely to result in:

What is the 'I-knew-it-all-along' phenomenon formally known as?

Which bias involves ignoring information that is complex to process or conflicts with an initial view, often resulting in reacting slowly to new data?

A market participant who sets up a data screen incorrectly to support a preferred belief is exhibiting:

Hyperbolic discounting is a concept associated with which bias?

A company automates employee enrollment in a 401(k) plan, requiring them to opt out if they do not wish to participate. This strategy addresses which bias?

An investor inherits a portfolio of bonds from a parent and refuses to sell them to buy higher-returning equities, citing a desire 'not to lose the money the parent worked hard for'. This is an example of:

Which bias involves putting undue emphasis on information that is readily available or easy to recall?

Which of the following is considered a 'processing error'?

Which of the following is considered a 'belief perseverance' error?

When an investor holds a mix of income-producing and non-income-producing securities that does not match their circumstances because they view income differently from capital appreciation, they are exhibiting:

A key implication of cognitive errors is that they:

Overconfidence is often associated with which other bias?

Which bias can cause market participants to place too much emphasis on events that receive a large amount of media attention?

In the context of the 'disease outbreak' example (Tversky and Kahneman), when the scenario was framed in terms of lives saved (gain), participants tended to be:

Which bias suggests that investors tend to invest heavily in firms in their domestic country?