CFA Level 3- -Complete Exam Study Guide
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bounded rationality ------- ✔ CORRECT ANSWER ✓✓individuals act as rationally as possible but
are constrained by a lack of knowledge and cognitive ability
satisfice ------- ✔ CORRECT ANSWER ✓✓making a reasonable but not necessarily optimal
decision
the price is right ------- ✔ CORRECT ANSWER ✓✓asset prices reflect and instantly adjust to all
available information
weak-form efficiency ------- ✔ CORRECT ANSWER ✓✓prices inncoporate all past price and
volume data
semi-strong form efficient ------- ✔ CORRECT ANSWER ✓✓prices reflect all public information
strong-form efficient ------- ✔ CORRECT ANSWER ✓✓all information reflected in prices. no one
can consistently earn excess returns
framing (consumption and savings) ------- ✔ CORRECT ANSWER ✓✓the way income is framed
affects whether it is saved or consumed
self-control bias (consumption and savings) ------- ✔ CORRECT ANSWER ✓✓favor current
consumption rather than saving income for future goals
,mental accounting (consumption and savings) ------- ✔ CORRECT ANSWER ✓✓assigning
different portions of wealth to meet different goals
sentiment premium (behavioral asset pricing) ------- ✔ CORRECT ANSWER ✓✓added to discount
rate; causes price deviation from fundamental values
behavioral portfolio theory ------- ✔ CORRECT ANSWER ✓✓investors structure their portfolios in
layers according to their goals
adaptive markets hypothesis ------- ✔ CORRECT ANSWER ✓✓apply heuristics until they no
longer work, then adjust them. must adapt to survive
cognitive errors ------- ✔ CORRECT ANSWER ✓✓result from incomplete information or inability
to analyze
emotional errors ------- ✔ CORRECT ANSWER ✓✓spontaneous reactions that affect how
individuals see information
conservatism bias (cognitive) ------- ✔ CORRECT ANSWER ✓✓emphasizing information used in
original forecast over new data
confirmation bias (cognitive) ------- ✔ CORRECT ANSWER ✓✓seeking data to support beliefs;
discounting contradictory facts
representativeness bias (cognitive) ------- ✔ CORRECT ANSWER ✓✓if-then stereotype heuristic
used to classify new information
base rate neglect (cognitive) ------- ✔ CORRECT ANSWER ✓✓too little weight on the base rate
, sample size neglect (cognitive) ------- ✔ CORRECT ANSWER ✓✓inferring too much from a small
new sample of information
control bias (cognitive) ------- ✔ CORRECT ANSWER ✓✓individuals feel they have more control
over outcomes than they actually have
hindsight bias (cognitive) ------- ✔ CORRECT ANSWER ✓✓perceiving actual outcomes as
reasonable and expected
anchoring and adjustment (cognitive) ------- ✔ CORRECT ANSWER ✓✓fixating on a target
number once investor has it in mind
mental accounting (cognitive) ------- ✔ CORRECT ANSWER ✓✓each goal, and corresponding
wealth, is considered separately
framing (cognitive) ------- ✔ CORRECT ANSWER ✓✓viewing information differently depending
on how it is received
availability bias (cognitive) ------- ✔ CORRECT ANSWER ✓✓future probabilities are impacted by
memorable past events
loss aversion (emotional) ------- ✔ CORRECT ANSWER ✓✓placing more "value" on losses than
on gains of the same magnitude
myopic loss aversion (emotional) ------- ✔ CORRECT ANSWER ✓✓if individuals systematically
avoid equity to avoid potential short run declines in value (loss aversion), equity prices will be
biased downward (and future returns upward)
with Verified Answers | Guaranteed A+
bounded rationality ------- ✔ CORRECT ANSWER ✓✓individuals act as rationally as possible but
are constrained by a lack of knowledge and cognitive ability
satisfice ------- ✔ CORRECT ANSWER ✓✓making a reasonable but not necessarily optimal
decision
the price is right ------- ✔ CORRECT ANSWER ✓✓asset prices reflect and instantly adjust to all
available information
weak-form efficiency ------- ✔ CORRECT ANSWER ✓✓prices inncoporate all past price and
volume data
semi-strong form efficient ------- ✔ CORRECT ANSWER ✓✓prices reflect all public information
strong-form efficient ------- ✔ CORRECT ANSWER ✓✓all information reflected in prices. no one
can consistently earn excess returns
framing (consumption and savings) ------- ✔ CORRECT ANSWER ✓✓the way income is framed
affects whether it is saved or consumed
self-control bias (consumption and savings) ------- ✔ CORRECT ANSWER ✓✓favor current
consumption rather than saving income for future goals
,mental accounting (consumption and savings) ------- ✔ CORRECT ANSWER ✓✓assigning
different portions of wealth to meet different goals
sentiment premium (behavioral asset pricing) ------- ✔ CORRECT ANSWER ✓✓added to discount
rate; causes price deviation from fundamental values
behavioral portfolio theory ------- ✔ CORRECT ANSWER ✓✓investors structure their portfolios in
layers according to their goals
adaptive markets hypothesis ------- ✔ CORRECT ANSWER ✓✓apply heuristics until they no
longer work, then adjust them. must adapt to survive
cognitive errors ------- ✔ CORRECT ANSWER ✓✓result from incomplete information or inability
to analyze
emotional errors ------- ✔ CORRECT ANSWER ✓✓spontaneous reactions that affect how
individuals see information
conservatism bias (cognitive) ------- ✔ CORRECT ANSWER ✓✓emphasizing information used in
original forecast over new data
confirmation bias (cognitive) ------- ✔ CORRECT ANSWER ✓✓seeking data to support beliefs;
discounting contradictory facts
representativeness bias (cognitive) ------- ✔ CORRECT ANSWER ✓✓if-then stereotype heuristic
used to classify new information
base rate neglect (cognitive) ------- ✔ CORRECT ANSWER ✓✓too little weight on the base rate
, sample size neglect (cognitive) ------- ✔ CORRECT ANSWER ✓✓inferring too much from a small
new sample of information
control bias (cognitive) ------- ✔ CORRECT ANSWER ✓✓individuals feel they have more control
over outcomes than they actually have
hindsight bias (cognitive) ------- ✔ CORRECT ANSWER ✓✓perceiving actual outcomes as
reasonable and expected
anchoring and adjustment (cognitive) ------- ✔ CORRECT ANSWER ✓✓fixating on a target
number once investor has it in mind
mental accounting (cognitive) ------- ✔ CORRECT ANSWER ✓✓each goal, and corresponding
wealth, is considered separately
framing (cognitive) ------- ✔ CORRECT ANSWER ✓✓viewing information differently depending
on how it is received
availability bias (cognitive) ------- ✔ CORRECT ANSWER ✓✓future probabilities are impacted by
memorable past events
loss aversion (emotional) ------- ✔ CORRECT ANSWER ✓✓placing more "value" on losses than
on gains of the same magnitude
myopic loss aversion (emotional) ------- ✔ CORRECT ANSWER ✓✓if individuals systematically
avoid equity to avoid potential short run declines in value (loss aversion), equity prices will be
biased downward (and future returns upward)
