Question

Butters and Bebe are having a conversation about money and the best actresses of all time. Two interesting conversations, no?! First, Butters thinks that bonds are the most risky investment due to the fact that interest rates are at an all-time low, and are bound for a “big” drop. Bebe notes Butters’ stupidity, and insists that there’s no debate-commodities actually have the highest standard deviation of any asset over the long-term. (Standard deviation is how us nerds quantify how risky something is!). How could there be such a discrepancy in opinion? They then switch subjects before ultimately nearly fighting once again. Bebe views Katharine Hepburn is the greatest actress of all-time with four Oscars. Butters, being the Meryl Streep fan that he is, says that it’s clear that she, with her 21 Oscar nominations (to Hepburn’s 12), and 3 Oscars is the by far the greatest to ever grace the silver screen. Again, why is the answer not clear-cut? 1) What behavior/bias is present? 2) Why is this behavior detrimental? 3) What could have been done differently, or what could be done differently next time to avoid this result?

Answer 1

1)The behaviour bias which is present is disposition effect bias. It is a tendency to label something clearly as winners or losers.

2)This bias is detrimental because, it can lead to hang on to an opinion without considering the viewpoint of others.

3) To avoid this bias, emotions and predisposition have to be recognized, kept aside and avoid making decisions based on them.