Behavioral Biases

1.

Behavioral
Biases
Kirill Afanasev (16,67%)
Anastasia Vyunova (16,67%)
Maria Malenkina (16,67%)
Anna Peshkan (16,67%)
Mark Khabarov (16,67%)
Elena Yakovleva (16,67%)

2.

Tiffany’s fund has used an equity market neutral
strategy and had an excellent reputation
Case
Case

3.

Tiffany’s fund has used an equity market neutral
strategy and had an excellent reputation
Case
Case
Significant underperformance against its
benchmark

4.

Tiffany’s fund has used an equity market neutral
strategy and had an excellent reputation
Case
Case
Significant underperformance against its
benchmark
Some positions have higher risk and have been
held too long
Decreasing trading volume
Portfolio is concentrated in a few sectors

5.

Tiffany’s fund has used an equity market neutral
strategy and had an excellent reputation
Case
Case
Significant underperformance against its
benchmark
Some positions have higher risk and have been
held too long
Decreasing trading volume
Portfolio is concentrated in a few sectors
Tiffany rejects all the analyst's suggestions

6.

01
Overconfidence bias
02
Experiential bias
03
Anchoring bias
04
Confirmation bias
“Tiffany dismisses Jeremy’s analysis and tells the team not to worry because she knows what
she is doing”
“She reassures the team that this strategy has performed well in the past... “
“...and that the markets will revert and the fund’s returns will return to normal levels”
“Jeremy tactfully suggests that the team review the fund’s IPS together, and Tiffany interrupts
him and reminds the team that she has memorized the IPS by heart.”

7.

How to Overcome Biases
Overconfidence
bias
Anchoring
bias
Think of the
consequences
Act as your own
devil’s advocate
Have an Open
Mind
Reflect on your
mistakes
Pay attention to
feedback!
Acknowledge the
bias
Delay your
decision
Drop your own
anchor
Experiential
bias
Learn different
opinions
Consider the
opposite point
High-quality
economic forecast
Confirmation
bias
Take it all in: don’t
jump to
conclusions
Brainstorming: the
rule of three
Flag it
Prove yourself
wrong
Circle back

8.

Mortgage crisis 2008
Confirmation and Experiential Biases

9.

Before crisis
Home prices increase

10.

Before crisis
Home prices increase
High ratings of MBSes,
CDOs (mortgage-based
investments)

11.

Before crisis
Home prices increase
High ratings of MBSes,
CDOs (mortgage-based
investments)
But! People will not buy so
expensive houses!

12.

This is a bubble!
– Jesse Colombo, Michael Burry, Nouriel Roubini and Peter Schiff.

13.

Experiential bias
in
e
h
t
t
s
a
p
ic
r
p
ro
s
e
…
e
s

14.

Experiential bias
n
i
t
n
th e
in
e
h
t
t
s
a
p
ic
r
p
ro
s
e
…
e
s
o
c
o
t
ly
e
th
k
i
l
w
ro
re
g
a
y
u
he
t
e

15.

Experiential bias
n
i
t
n
th e
in
e
h
t
t
s
a
p
ic
r
p
ro
s
e
…
e
s
o
c
o
t
ly
e
th
k
i
l
w
ro
re
g
a
y
u
he
t
e
investors decide to
put money

16.

Experiential bias
t it
bu
sa
wa
le…
bb
bu
in
e
h
t
t
s
a
p
ic
r
p
ro
s
e
…
e
s

17.

Confirmation bias
Investors were informed by
these people that bubble would
burst.

18.

Confirmation bias
Investors were informed by
these people that bubble would
burst.
But investors did not hear them…

19.

Resources
Dsouza, M. (2020, June 23). Overconfidence Bias - You Are Not As Smart As You Think. Productive Club.
https://productiveclub.com/overconfidence-bias/
Krockow, E. M. (2019). Outsmart the Anchoring Bias in Three Simple Steps. Psychology Today.
https://www.psychologytoday.com/us/blog/stretching-theory/201902/outsmart-the-anchoring-bias-in-three-simplesteps
Luippold, B. L., Perreault, S., & Wainberg, J. (2015, February 1). 5 ways to overcome confirmation bias. Journal of
Accountancy. https://www.journalofaccountancy.com/issues/2015/feb/how-to-overcome-confirmation-bias.html
Quiggin, J. (2012). Zombie Economics: How Dead Ideas Still Walk among Us (Revised ed.). Princeton University Press.
Vrooman, P., & Sarver, J. (2018). 18 Key Behavioral Finance Biases.
http://www.sarvervrooman.wfadv.com/files/68283/18_Key_Behavioral_Sarver-Vrooman_WFA_4cF_hi-res.pdf
Wikipedia contributors. (2021a, January 7). Nouriel Roubini. Wikipedia. https://en.wikipedia.org/wiki/Nouriel_Roubini
Colombo, J. (n.d.). Jesse Colombo. Forbes. https://www.forbes.com/sites/jessecolombo/?sh=2d516a3625d4