Question

People make a variety of mistakes when making decisions. These mistakes are generally associated with a host of biases that occur when we use subconscious judgmental shortcuts to reduce information processing demands. These shortcuts can be useful in evaluating current problems because they are representative of knowledge we have gained in the past. However, they can also lead to systematic errors that erode the quality of our decisions. This activity is important because understanding decision-making biases can help you to make more rational decisions and avoid using biases in the wrong situations. The goal of this activity is to help you identify and differentiate between the most common decision-making biases.
Professor French tells you that South Africa’s stock market undervalued and suggests that it is a good investment. You discover that South Africa is about to impose a new tax on security transactions, which will results in lower liquidity. The next class you bring this to Professor French’s attention. Simultaneously, another student mentions that as commodity prices recover South Africa’s stock market will rise sharply. Dr. French ignores the information you provide and congratulates the other student on excellent research.

Required:
Which type of bias is Professor French displaying? Explain briefly.

Answer 1

Answer:

"Recency bias" is the correct approach.

Explanation:

• Cognitive distortion, where certain markets appear to focus on even more than just current developments as well as news, is considered as a Recency bias.
• Just the last four quarters have Professor French checked. He overweighed the latest knowledge when trying to analyze the documents and records before MMM would be a development business.

Thus the above is the appropriate response.