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chapt2 C&&C > FINMAN E2 TOPIC 1 -3 > Flashcards

FINMAN E2 TOPIC 1 -3 Flashcards

1
Q

refers to a type of selective perception that emphasizes ideas that confirm our beliefs while devaluing whatever contradicts our beliefs

refers to ur all-too-natural ability to convince ourselves of whatever it is we want to believe

A

CONFIRMATION BIAS

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2
Q

T/F

In confirmation bias you are seeking out objective facts

A

FALSE. YOU ARE NOT

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3
Q

T/F

in confirmation bias, interpreting info to support your existing belief

A

TRUE.

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4
Q

T/F

in confirmation bias you do not only remember details that upholds your belief

A

FALSE. YOU ONLY REMEMBERS details that upholds your belief

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5
Q

T/F

in confirmation bias, you ignore info that challenges your belief

A

TRUE

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6
Q

T/F

CONFIRMATION BIAS MAY LEAD TO CLIENTS UNDERINVESTING IN A PARTICULAR STOCK/SECTOR

A

FALSE. OVERINVESTING

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7
Q

T/F

CONFIRMATION BIAS MAY LEAD TO CLIENTS BIAS INTERPRETATION. THIS IS WHEN WE CONSCIOUSLY INTERPRET INFO IN A WAY THAT CONFIRMS OUR BELIEFS

A

TRUE

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8
Q

WHO HAS CONFIRMATION BIAS?

A

GENERATION X WITH 58% THIS IS ACCORDING TO CHARLES SCHWAB OF CERULLI ASSOCIATES

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9
Q

ADVISORS SAY _ OF THEIR CLIENTS ARE AFFECTED BY THEIR CONFIRMATION BIAS, AND _ ARE SIGNIFICANTLY AFFECTED

  • CHARLES SCHWAB OF CERULLI ASSOCIATES
A

93% AND 50%

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10
Q

give the sources of confirmation bias

A

POPULAR NARRATIVES
CULTURAL BELIEF
FAMILY VALUES

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11
Q

T/F

INVESTORS OFTEN FAIL TO ACKNOWLEDGE ANYTHING NEGATIVE ABOUT INVESTMENTS THEY’VE JUST MADE

A

TRUE. EVEN WHEN SUBSTANTIAL EVIDENCE BEGIN TO ARGUE AGAINST THESE INVESTMENTS

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12
Q

CONFIRMATION BIAS CAN CAUSE INVESTORS TO CONTINUE TO HOLD UNDER?

A

DIVERSIFIED PORTFOLIOS

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13
Q

EXAMPLE OF THE CASE OF CONFIRMATION BIAS

A

THE CASE OF THE GOLD INVESTOR (2010)

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14
Q

HOW TO AVOID CONFIRMATION BIAS

A

FIRST AND FOREMOST, ACCEPT THAT YOU HAVE BIASES THAT IMPACT YOUR DECISION-MAKING

DO YOUR RESEARCH THOROUGHLY WHEN SEARCHING FOR INFO

MAKE SURE U READ ENTIRE ARTICLES, NOT JUST THE HEADLINE, PRIOR TO DRAWING ANY CONCLUSIONS

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15
Q

who said this?

A wise man should have money in his head, but not in his heart.

A

Jonathan Swift

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16
Q

is inconsistent with standard economic theory, which
asserts that a person’s willingness to pay for a good or an object
should always equal the person’s willingness to accept the
dispossession of the good or the object

A

Endowment bias

17
Q

T/F

People who exhibit endowment bias value an asset more when they
hold property rights to it than when they don’t.

A

TRUE

18
Q

When a person is selling a car at $40,000.
However, the sales price for the same
model at a local dealership is $20,000. In
this case, the person perceives the car as
more valuable since they own it

what is this example?

A

EXAMPLE OF
ENDOWMENT
BIAS

19
Q

SUBJECT TO SUFFER FROM ENDOWMENT BIAS

A

older people / sentimental person

celebrity

collectors

investors

20
Q

Generally, endowment bias tends to impact investors in two main contexts:

A

(1) inherited securities
(2) purchased securities

21
Q

ENDOWMENT BIAS IMPLICATIONS TO INVESTOR

A

First, investors may hold onto securities that they already own.

Second, investors hold onto securities because of familiarity.

22
Q

is a belief in oneself, the conviction that one has
the ability to meet life’s challenges and to succeed—and the
willingness to act accordingl

A

CONFIDENCE

23
Q

Characteristics of a confident person:

A
  1. Acts responsible and asks for help when needed.
  2. Confident people don’t make excuses.
  3. Confident people never worry about what others think of them.
  4. The confident person is not afraid to make a decision.
24
Q

who said this?

Too many people overvalue what they are not and
undervalue what they are.

A

Malcolm S. Forbes

25
Q

was estimated to complete
in 4 years with a cost of AUS $7 million.

A

Opera house

26
Q

The Sydney Opera house took how many years to complete and how much

A

The Sydney Opera house took 14 years after the first
estimate with a final cost of AUS $ 102 million.

27
Q

Why
overconfidence
occur?

A

As human beings, we like to
feel good about ourselves.

✓ We hate being looked down
upon.

✓ We like to win and feel the
best.

✓ The problem is, we consider
ourselves as a part of the best
even when we are not.

28
Q

The tendency to overestimate our
abilities and talent. We believe that
we are better than what we actually
are

A

overconfidence

29
Q

A bias where the subjective
confidence of your assumptions is
greater than the objective accuracy.

A

overconfidence

30
Q

T/F

Overconfidence bias may lead
clients to make risky investments.

A

TRUE

31
Q
A
32
Q

overestimation of one’s actual
ability to perform a task successfully,
by a belief that one’s performance is
better than that of others, or by
excessive certainty in the accuracy
of one’s beliefs

A

OVERCONFIDENCE

33
Q

T/F

THE HIGHER THE LVL OF CONFIDENCE THE HIGHER THE COST OF MISTAKE

A

TRUE

34
Q

Types of Overconfidence

A

Overestimation
Overplacement
Over-precision

35
Q

it is the belief that you are
better at something than
the reality of your skills or
abilities would indicate. A
person with this type of
overconfidence
overestimates what they
are able to do.

A

Overestimation

36
Q

It is the belief that you are
better than other people.
It involves comparing
yourself to others with
regards to a skill or ability
and making the
assumption (often
erroneously) that you are
better than the majority of
other people at
something.

A

Overplacement

37
Q

It is a sense of certainty
that you, more so than
others, know the truth or
reality of what is going to
occur in the future. A
person experiencing this
kind of overconfidence
erroneously believes they
have some special insight
that gives them an edge
when it comes to knowing
what is to come

A

Over-precision

38
Q

How does overconfidence
can affect
you?

A

Estimating timelines
* Believing you do not need to learn because you are skilled
* Thinking you can do it
* I do not need to write it down
* Assuming you are better than the experts

39
Q

Impact of overconfidence bias
on your investment decisions

A

Overconfidence of investors
generally misleads them, and they
tend to ignore the actual risk involved
in the investments because they
often give importance to their
prediction window.
* Investors suffering from
overconfidence usually believe that
their choice of investment avenues is
right, but this can often lead them
towards low returns from their
investment

chapt2 C&&C (10 decks)

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