-An advisor for Alesi Capital Managment is owrking with a new client, Melanie St

Question

-An advisor for Alesi Capital Managment is owrking with a new client, Melanie Stoffer. Prior to meeting with her, the advisor asks Stoffer a series of diagnostic qeustions to determine whether she may have any of the following investment behavioral biases:

Anchoring

Hindsight

Regret aversion

Representativeness

Satus quo

- The diagnostic questions are as follows:

- 1. Would a prior investment decision that resulted in a loss stop you from making a similar decision, even if the new invsetment appears to be the best alternative?

-2. How frequently do you review your investment portfolio?

-3. would you sell a recent equity investment following a management annoucement of a significant decline in the expected growth rate of revenue?

Identify the behavioral bias that each diagnostic question is most likely to reveal. (Note: each diagnostic question is designed to reveal a differnet bias.)

Explanation / Answer

Ans 1 - Anchoring. As it will reveal whether the investor is relying too much on the prior investment decision or not.

Ans 2 - Status quo. As frequent review of the portfolio will reveal the changes in the value of the initial value of it.

Ans 3 - Regret aversion. If the investor sells the equity then it would reveal that the investor is risk averse and would try to avoid it.

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