Question
What two subtypes make up cognitive errors in the CFA behavioral-bias taxonomy?
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Answer
Belief perseverance and information-processing biases.
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Question
On the CFA Level I exam, how are behavioral biases classified at the highest level?
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Answer
Into cognitive errors and emotional biases.
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Question
Why is it dangerous to classify overconfidence as a cognitive error?
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Answer
Because overconfidence is an emotional bias, not a cognitive error.
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Question
After a stock crashes, an investor says the decline was obvious all along. Which bias is this, and why is it harmful?
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Answer
Hindsight; it breeds overconfidence and underestimates uncertainty.
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