Hey,
Went through this mock today and was confused on this question. For client 1 and equity uno how is it not buy additional shares? To avoid regret of missing further price increase wouldn’t he buy more?
Thanks
Bump.
I took it too today and will shortly check out the guideline answers. My initial thought was buying more as well, but then I decided on not doing anything and play the waiting game. He would be too afraid to admit a mistake, yet too scared to buy more —> no action. Let‘s see whether I got this right.
This is a tough question because if you look at the 2017 exam (5-C) they state that regret aversion can lead to herding in financial markets, which means he would buy more as he would regret missing out on future appreciation.
My suggestion would be to state your reasoning in the commentary and hope for the best, as there are a few inconsistencies/contradictories in the behavioral finance section which lead to confusion.
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Regret aversion is typically viewed from 2 sides like cfabanker31 mentioned. Either doing nothing out of fear the action could turn out wrongly or following the herd (FOMO). There is no indication of herding here so stick with the first interpretation.
Took this one today and missed that question. How did you guys do?
Thanks, helpful. Also came here after seeing 5-C in 2017 mock. I also went for not doing anything, as the curriculum clearly defines regret aversion as “An emotional bias in which people tend to avoid making decisions that will result in action out of fear that the decision will turn out poorly.”
Inconsistency.