Question

Perma-bearJim Chanos recently was interviewed on financial news channel for his short position on Tesla (stock price collapsed from $960 to $360 in 4 week due to Covid-19). He also claims to have predicted the 2008 financial crisis. Over the last 3 decades, however, he managed to lose 99% of his investor's money. If an investor who have seen that interview and decided to invest in his fund are likely suffering from which of the following cognitive error? I. Representitativeness heuristic II. Availability heuristic III. Confirmation bias. IV. Affect heuristic.

IV only

I and II only

III only

III and IV only

I, II, III and IV

Answer 1

Answer-

The correct Option is - III and IV only .
The decision to invest is driven by Confirmation bias and  Affect heuristic.

Confirmation bias is there when an individual  look for evidence that confirms ones intuitions rather than evidence that refutes it.
Affect heuristic is the result of emotions which guide our decision-making.

In the above situation both the Confirmatiom bias and Affect heuristic are applied as the intuition is used to invest in based on the interview rather than taking into cosideration the track record and also Affect heusistic which is driven by emotions in decision making.

The options I and II are incorrect as Representativeness heuristic is the way to judge people according to the extent to which they match up with a previously formed stereotype which is not the case here and Availability heuristic which is used to acces the frequency or probability of an event occuring according to which instances are available in memory at a given point in time which is also not justified in the decision making to invest.