Behavioral economics

Question 1

List cognitive biases

Answer 1

Belief perseverance:
1) Conservatism bias
2) Confirmation bias
3) Representativeness bias (influence of established framework / categories)
4) Illusion of control
5) Hindsight bias (belief that past events were predictable)
Information processing biases:
1) Anchoring
2) Mental accounting
3) Framing bias
4) Availability bias (how easily a given outcome comes to mind)

Question 2

List emotional biases

Answer 2

1) Loss aversion:
1. 1) House money effect (take more risk after a gain)
1. 2) Myopic loss aversion (willingness to take 100 of similar bets while reject one - disproportional pain of single loss)
2) Overconfidence bias:
2. 1) Illusion of knowledge
2. 2) Self-attribution bias
3) Self-control bias - hyperbolic discounting
4) Status quo bias
5) Endowment bias (good in possession have higher value)
6) Regret aversion bias (lead to herding behavior)

Question 3

Active accumulator (AA) behavioral investor type

Answer 3

1) Active investing
2) High risk tolerance
3) Biases: overconfidence, self-control, illusion of control

Question 4

Passive preserver (PP) behavioral investor type

Answer 4

1) Passive investing
2) Low risk tolerance
3) Biases: endowment, loss & regret aversion, status quo, mental accounting, anchoring

Question 5

Friendly follower (FF) behavioral investor type

Answer 5

1) Passive investing
2) Medium low risk tolerance
3) Biases: regret aversion, availability, hindsight, framing

Question 6

Independent individualist (II) behavioral investor type

Answer 6

1) Active investing
2) Medium high risk tolerance
3) Biases: overconfidence, self-attribution, confirmation, representativeness, availability, conservatism