Question
A client leaves an inherited portfolio unchanged for years despite misaligned asset weights. Which bias is this, and what portfolio problem can result?
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Answer
Status quo; failure to rebalance.
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Question
An investor buys a fund just because it has recently outperformed for a short period. Which bias is this, and what portfolio behavior often follows?
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Answer
Representativeness; chasing recent winners.
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Question
An employee refuses to sell a large position in employer stock because it feels more valuable than other stocks. Which bias is this?
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Answer
Endowment bias.
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Question
An investor refuses to revise a price target because he is fixated on the purchase price. Which bias is this, and what usually results?
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Answer
Anchoring and adjustment; insufficient updating of estimates.
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