Chapter 9, Problem 2PS

Summary Introduction

To determine:

The behavioral tendency of the individual that compel him to think that active investing can lead to superior results after going through article of three successful investors

Introduction:

Investor refers to an individual that invest its money with the hope of earning a decent return on the same. Investment is a great tool through which an individual can plan income during his retirement and for growth of idle money.

Answer to Problem 2PS

The behavioral tendency exhibited in this case is representativeness bias. It should also be noted that the size of the sample was not taken into consideration at the time of making decision.

Explanation of Solution

Representativeness refers to the extent pertaining to which an incident stands to represent its parent population. When an investor comes across the behavioral tendency of representativeness bias, he erroneously judges that a particular thing is more representative than it really is. Representativeness stands to be the psychological bias wherein investor usually believes that extraordinary performance of the specific firm in the past stands to represent the firm's performance which will most likely continue in the future.