Can anybody explain biases? Reading 12 example 1, Bailer family

[sachin_patel]

The solution to Q3 in example 1 mentions that Mr Bailer may have confirmation bias.
And Mrs Bailer may have status quo bias.
Which portion of question details indicate confirmation bias and which portion indicate status quo bias?
Thanks.

 

[zulu007]

Here is what I can understand.
Starting with Mrs. Bailer (status quo):
1. The familys networth grew overtime due to increase in ABC stock value
2. Dividends paid from ABC holdings were paying off their living expenses for many years
Due to above reasons, she was happy to leave the ABC holdings untouched over the years (status quo).
Mr. Bailer is a little more difficult for me to grasp. He may be suffering from over-confidence and
confirmation bias. Like, he thinks, he knows the company much better than investors, due to his past relationships with the firm and only seeks positive information to confirm his bullish view (bias) to retain these holdings.
I agree that it is not very clear but hope this helps !

 

[sachin_patel]

only seeks positive information to confirm his bullish view
I couldn’t find this text in question.

 

[zulu007]

The whole story is around this view - “he is loyal and a big fan of the company…”

 

[ink]

zulu007 wrote:
The whole story is around this view - “he is loyal and a big fan of the company…”

What you just quoted would describe the loyalty effect.
I find the answer prompt to be very badly written. As patel indicates, there is nothing in the text that would indicate confimration bias. The only thing that is mentioned is that he follows the stock closely, which doesn’t mean that he is looking for positive information that would validate his opinions of the company. Any investor with a concentrated position would “follow the stock regularly.” What is needed is evidnence that the investor only seeks positive information.
There is evidnece however for status quo in Mrs Bailer’s behavior. If you read closely, it says that the divident from the sotck paid for their living expenses, which implies that she would like to not change this arrangement so that the stock will continue to cover their expenses in the future. This would go againt the more rational view of diversifing your position and minimizing risk exposure.