CFAI 2012 AM exam: Question 4 A.3

[Galli]

For this question I understand how the investor would display an Anchoring bias if they simply did nothing since they were stuck to their “old” view but how is this not also a Representativeness bias if they didn’t do more due diligence before selling?
Any thoughts?

 

[Miamia]

maybe this will trigger some thoughts: what is the categorization then?

 

[ink]

Miamia wrote:
maybe this will trigger some thoughts: what is the categorization then?

If a company sends out a good earnings report, categorize it as a buy, otherwise do nothing.
I was also somewhat not clear on their explanation. They mention somewhere in the text that investors with representativeness bias are likely to show frequent turnover, because they purchase companies that have recently experienced good earnings, only to sell them subsequently because of their poor performance.

 

[June06]

Agree…it should have representativeness bias if they didn’t do more due diligence before selling…

 

[Audacious]

In behavioral questions, I noticed they normally give a keyword that’s common to 2 biases in the answers list, a keyword that’s unique to the correct answer, and a red herring.
I get a third of those questions wrong. I notice how obvious the correct answer is after the fact. An annoying hindsight.

 

[Cric12]

Audacious wrote:
In behavioral questions, I noticed they normally give a keyword that’s common to 2 biases in the answers list, a keyword that’s unique to the correct answer, and a red herring.
I get a third of those questions wrong. I notice how obvious the correct answer is after the fact. An annoying hindsight.

So what was the keyword in this that makes it Anchoring bias and not representative?

 

[June06]

^ Good question…under-reaction?