What to know
Identify the rule, formula, or decision criterion before reading the answer choices. CFA Level I distractors often use the right vocabulary with the wrong condition.
Portfolio Management
The Behavioral Biases of Individuals practice questions
The Behavioral Biases of Individuals is part of CFA Level I Portfolio Management. Portfolio Management questions connect risk and return, asset allocation, CAPM, IPS constraints, behavioral biases, performance, and risk management. Use this page to review the controlling ideas, then work through 8 questions with answer explanations and common traps.
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Portfolio Management
The Behavioral Biases of Individuals
Which of the following biases is most likely classified as an emotional bias rather than a cognitive error?
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The Behavioral Biases of Individuals
Rosa Almeida funds her living expenses only from dividends and interest, refusing to sell shares even when better total-return opportunities exist, and she manages her vacation account separately from her retirement account without considering how the holdings in the two accounts interact. Her behavior is most consistent with:
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The Behavioral Biases of Individuals
Analyst Johan Berg set a target price of 60 for a stock. After the company issues materially weaker forward guidance, he lowers his target only to 58, staying near his original figure despite the significance of the new information. Berg's behavior is most consistent with:
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The Behavioral Biases of Individuals
After three profitable years, fund manager Keiko Tanaka attributes her gains to superior skill and her occasional losses to bad luck. She now publishes earnings forecasts with unusually narrow ranges and has increased both portfolio concentration and trading frequency. Tanaka's behavior is most consistent with:
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The Behavioral Biases of Individuals
A portfolio manager privately concludes that a sector is overvalued but keeps buying it because most competing managers are buying. When such behavior is widespread among investors, it most likely contributes to:
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The Behavioral Biases of Individuals
A cognitive error is most accurately described as a bias arising from:
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The Behavioral Biases of Individuals
An investor refuses to sell a losing stock because realizing the loss would feel painful, even though better risk-adjusted opportunities are available. The behavior is most consistent with:
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The Behavioral Biases of Individuals
A group of investors extrapolates a short streak of high returns far into the future and pushes prices away from values implied by fundamentals. This behavior most directly illustrates:
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