Page 157 - A Canuck's Guide to Financial Literacy 2020

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B. Bob is a farmer
A large number of people will guess that Bob will play trumpet
when it might be just as likely or more for him to be a farmer as
farmer population is greater.

▪ Framing Bias
Framing Bias deals with investors tendency to change their decisions based on the
way an information is presented to them as opposed to analyzing the facts for
themselves. The same fact when presented in two different ways can lead people to
making different judgement or decisions.

▪ In Q2, our earnings per share (EPS) was 1.40 compared to expectations of
1.42
▪ In Q2, our earnings per share (EPS) was 1.40 compared to Q1 when it was
1.35

Option #2 does a better job of framing the corporate earnings report.

▪ Anchoring Bias

Anchoring bias refers to investors who are rely on the first information or facts that
they see. For example, if you notice shoes priced at $500 and then see a second
one that costs $50, you’ll believe that the second shoes were priced cheaply! That’s
anchoring bias. Individuals would use an initial piece of judgement to make
subsequent judgments.

▪ Loss Aversion

Loss aversion is the tendency by investors to avoid taking a loss on their
investments. Investors are willing to take on more risk when they experience losses
and take on less risk as they experience gains. For example, we would be more
upset about losing $10 then we would be for finding $10. Losses hurt twice as much
as gains.