Meeting Investors' Goals, week (1-4) All Quiz Answers with Assignments.


 Meeting Investors' Goals

Week 2 Assignment :


Your friend (or client) comes to you with a list of companies they believe are worth adding to their portfolio. However, you notice something about this list: you have seen almost all of these company names in your favorite local financial media in the recent past.

What are the two cognitive biases your friend (or client) appears to be affected by?

What is the definition of each of these two biases?

What are the three pieces of advice you would give your friend (or client) to avoid these two biases?

Every year, the U.S. Army must select from an applicant pool in the hundreds of thousands to meet annual enlistment targets, currently numbering in the tens of thousands of new soldiers. A critical component of the selection process for enlisted service members is the formal assessments administered to applicants to determine their performance potential. Attrition for the U.S. military is hugely expensive. Every recruit that does not make it through basic training or beyond a first enlistment costs hundreds of thousands of dollars. Academic and other professional settings suffer similar losses when the wrong individuals are accepted into the wrong schools and programs or jobs and companies. Picking the right people from the start is becoming increasingly important in today's economy and in response to the growing numbers of applicants. Beyond cognitive tests of ability, what other attributes should selectors be considering to know whether an individual has the talent and the capability to perform as well as the mental and psychological drive to succeed? Measuring Human Capabilities: An Agenda for Basic Research on the Assessment of Individual and Group Performance Potential for Military Accession examines promising emerging theoretical, technological, and statistical advances that could provide scientifically valid new approaches and measurement capabilities to assess human capability. This report considers the basic research necessary to maximize the efficiency, accuracy, and effective use of human capability measures in the military's selection and initial occupational assignment process. The research recommendations of Measuring Human Capabilities will identify ways to supplement the Army's enlisted soldier accession system with additional predictors of individual and collective performance. Although the primary audience for this report is the U.S. military, this book will be of interest to researchers of psychometrics, personnel selection and testing, team dynamics, cognitive ability, and measurement methods and technologies. Professionals interested in of the foundational science behind academic testing, job selection, and human resources management will also find this report of interest.


After having followed your advice, your friend (or client) calls you to arrange a meeting to discuss new investment opportunities. They tell you that they have made forecasts on the expected returns of each of those investment opportunities. On your way to the meeting, you can't help imagining what cognitive biases may have affected your friend (or client) when doing their forecasts of expected returns.

Give two cognitive biases that may have affected your friend (or client) when doing their forecasts of expected returns.

Write down two realistic scenarios (one for each bias) that may have happened to your friend (or client) and which illustrates each of the two biases.

The Confirmation Bias Three multi-ethnic senior men sitting on bench talking  kali9 / Getty Images  The confirmation bias is based on finding that people  tend to listen more often to information that confirms  the beliefs they already have. Through this bias, people  tend to favor information that confirms their previously  held beliefs.  This bias can be particularly evident when it comes to  issues like gun control and global warming. Instead of  listening to the opposing side and considering all of the  facts in a logical and rational manner, people tend  simply to look for things that reinforce what they already  think is true.  In many cases, people on two sides of an issue can listen  to the same story, and each will walk away with a  different interpretation that they feel validates their  existing point of view. This is often indicative that the  confirmation bias is working to "bias" their opinions. The Hindsight Bias Rearview mirror  Earl Richardson / EyeEm / Getty Images  The hindsight bias is a common cognitive bias that  involved the tendency of people to see events, even  random ones, as more predictable than they are. In one  classic psychology experiment, college students were  asked to predict whether they thought then-nominee  Clarence Thomas would be confirmed to the U.S.  Supreme Court.  Prior to the Senate vote, 58% of the students thought  Thomas would be confirmed. The students were polled  again following Thomas's confirmation, and a whopping  78% of students said they had believed Thomas would  be confirmed.  This tendency to look back on events and believe that  we “knew it all along” is surprisingly prevalent. Following  exams, students often look back on questions and think  “Of course! I knew that!” even though they missed it the  first time around. Investors look back and believe that  they could have predicted which tech  companies would  become dominant forces.  The hindsight bias occurs for a combination of reasons, including our ability to "misremember" previous  predictions, our tendency to view events as inevitable, and our tendency to believe we could have foreseen  certain events.


Time has come for your friend (or client) to rebalance their portfolio. You warn them of the "endowment" effect. They tell you that this effect is silly; it would never happen to them.

According to you friend's (or client's) original strategy, the rebalancing of their portfolio implies selling 100 shares of company XYZ and buying 100 shares of company ABC. Companies XYZ and ABC are privately held (i.e. their share price cannot be observed on a stock exchange)

Knowing that XYZ and ABC are extremely similar companies in every aspect, how would you show to your friend (or client) that the "endowment" effect is not so silly after all?

No problem


Now that you have exposed many of their cognitive biases to them, your friend (or client) is slightly upset and accuses you of being pretentious for pointing out other people's cognitive biases but remaining silent about your own.

To calm them down, give one cognitive bias that you haven't yet mentioned in this assignment and which may affect you.

(If you feel that none of the remaining cognitive biases may affect you, please choose one nonetheless.)

To further convince your friend (or client), write down an anecdote when you were affected by your chosen cognitive bias. If you do not have such an anecdote, make one up!

Though the concept of illusory superiority arguably  dates back to Confucius and Socrates, it may come as a  shock that its discussion in the form of the Dunning-  Kruger Effect is almost 20 years old; and though it may  simply be a result of an echo chamber created through  my own social media, it seems to be popping up quite  frequently in the news and posts that I’ve been reading  lately – even through memes! For those of you  unfamiliar with the phenomenon, the Dunning-Kruger  Effect refers to a cognitive bias in which individuals with  a low level of knowledge in a particular subject  mistakenly assess their knowledge or ability as greater  than it is. Similarly, it also refers to experts  underestimating their own level of knowledge or ability.  But, then again, maybe it’s not my echo chamber…  maybe it is part and parcel of our new knowledge  economy (Dwyer, 2017; Dwyer, Hogan & Stewart, 2014)  and the manner in which we quickly and effortlessly  process information (right or wrong) with the help of the  internet. In any case, given the frequency with which I  seem to have encountered mention of this cognitive bias  lately, coupled with the interest in my previous blog post  18 Common Logical Fallacies and Persuasion  Techniques, I decided it might be interesting to compile  a similar list – this time, one of cognitive biases. A cognitive bias refers to a ‘systematic error’ in the  thinking process. Such biases are often connected to a heuristic, which is essentially a mental shortcut –  heuristics allow one to make an inference without  extensive deliberation and/or reflective judgment, given  that they are essentially schemas for such solutions  (West, Toplak, & Stanovich, 2008). Though there are  many interesting heuristics out there, the following list  deals exclusively with cognitive biases. Furthermore,  these are not the only cognitive biases out there (e.g.  there’s also the halo effect and the just world  phenomenon); rather, they are 12 common biases that  affect how we make everyday decisions, from my  experience.]

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