Diagnostic Testing of Biases:

(Self-control, Confirmation & Regret Aversion)

BY:
GROUP 2
NAME ENROLLMENT NO
Surbhi Ariwala 004
Khureshan Beshania 013
Sneha Rathod 211
Hrithik Shah 225
Sumitkumar Vishvakarma 280
SELF – CONTROL BIAS
What is Self- Control Bias?

Self-control bias in behavioral finance

refers to the tendency of individuals to
make decisions that prioritize immediate
gratification or short-term desires over
long-term goals or benefits. In simpler
terms, it's when people struggle to resist
the temptation of instant rewards, even if
it's not in their best interest in the long
run.
 Demographic Questions :

In Questionnaire 20 Respondent data were collected.

Age Of Respondents:\ Income of Respondents:\

 Percentage of Savings Invested By The Respondents:

Interpretation:
50% majority of respondents are investing their 0-25% savings. Following 40%
are investing their 25-50% of savings.
1) SELF – CONTROL BIAS QUESTIONS:
Suppose that you are in need of a new automobile. You have been driving your current car for seven years, and
it's time for a change. Assume that you do face some constraints in your purchase as " money does not grow
on trees." Which of the following approaches are You most likely to take ?

(A) I would typically underspend on a car because I view a car as transportation , and I
don't need anything fancy. Beside, I can save extra money I might have spent on a
fancy car and put it away in my saving account.
(B) I would typically purchase a medium- priced model , with some fancy option , simply
because I enjoy a nice car . I may forgo other purchases in order to afford a nice car. I don't
imagine that I'd go crazy and purchase anything extravagant , but a nice car is some-thing that
I value to extent and am willing to spend money to obtain this.
(C) When it comes to cars, I like to indulge myself. I’d probably splurge on a top-of-
the-line model and select most or all available luxury options. Even if I must purchase
this car at the expense of saving money for the long term, I believe that it’s vital to live
in the moment. This car is simply my way of living in the moment.
Interpretation:

65% respondents believe they purchase a medium price model, with fancy option due to their appreciation for
a nice car, willing to spend money to obtain it.
In This question majority respondents have selected option “B” & hence they are susceptible to self- control
bias.
2) SELF – CONTROL BIAS QUESTIONS:

How would you characterize your retirement saving patterns?

(A) I Consult my advisors and make sure that every tax - favoured
investment vehicle is maxed out (401(k),IRA, etc.), and i will often save
additional funds in taxable accounts.
(B) I will usually take advantage od most tax- favoured investment vehicles, though in
some cases I'm sure that get sold may have escaped my attention . I may or may not
save something in taxable investment accounts.

(C) I hardly ever save for retirement . I spend most of my disposable

income , so very little remains available for savings.

Interpretation:

50% respondent are believes they usually take advantages of most tax favored investment vehicles,
they not save something in taxable investment accounts.
In here, majority respondent are selected option “B” there are susceptible to self- control bias.
3) SELF – CONTROL BIAS QUESTIONS:

How well would you rate your own self - discipline ?

(A) I always achieve a goal if it is important to me . If I want to lose 10

pounds, for example, I will diet and exercise relentlessly until i am
satisfied.

(B) I can often attain my goals, but sometimes i have trouble sticking to
certain difficult things that i have resolved to accomplish.

(C) I have a tremendous amount of difficulty keeping promises to my self.

I have little or no self - discipline, and I often find my self reaching out to
others for help in attaining key goals.

Interpretation:
60% respondents often attaining their goals, but sometimes they struggle to maintain their commitment
to challenging tasks.
In this question, majority of respondents have selected option “B” they are susceptible to self- control
bias
How prevent from Self – control Bias

Avoid emotional triggers

Create a Budget

Avoid Temptation

Set clear financial goals

CONFIRMATION BIAS
What is Confirmation Bias?
The confirmation bias can often lead to
bad decision-making. For example, if
we are convinced that a particular
investment is good, we may ignore
warning signs that it might not be. Or,
if we are set on getting a job with a
particular company, we may not
consider other opportunities that may
be better suited for us.
1) CONFIRMATION BIAS QUESTIONS:

Suppose you have invested in a security after some careful research. Now ,You come on a press release that
states that the company you’ve invested in may have a problem with its main product line. The second
paragraph, however, describes a completely new product that the company might debut later this year. What
is your natural course of action?

(A) I will typically take notice of the new product announcement and
research that item further.

(B) I will typically take notice of the problem with the company 's product
line and research that item further.

Interpretation:

60% respondents have selected option “B” as they believe they will take notice of the
problem with the company’s product line and conduct further research on that particular
item.
2) CONFIRMATION BIAS QUESTIONS:

Suppose you have invested in a security after some careful research. The investment appreciates in value but
not for the reason you predicted (e.g., you were enticed by some buzz surrounding a new product, but
resurgence by an older product line ultimately buoyed the stock). What is your natural course of action?

(A) Since the company did well, I am not concerned. The shares I've
selected have generated a profit. This confirms that the stock was a good
investment.

(B) Although I am pleased, I am concerned about the investment. I will do

further research to confirm the logic behind my position.

Interpretation:
60 % respondents believe that company’s performance is satisfactory , and they choose the share that
have yielded profit
In this question respondent selected option “A” they are more likely to exhibit confirmation bias. Than
who selected “B”.
3) CONFIRMATION BIAS QUESTIONS:

Suppose you decide to invest in gold as a hedge against inflation. You performed careful research to determine
the relationship between gold values and inflation levels. Three months after you in- vest, you realize that gold
prices have risen with no commensurate change in inflation. This is not what you expected. How do you react?

(A) I will just “go with it.” The reason that an investment performs well is
not important. What’s important it that I made a good investment.

(B) I will do research to try and determine why gold prices and inflation
aren’t correlating in the manner I’d predicted. This will help me
determine if I should remain invested in gold.

Interpretation:
55% respondents are planning to conduct research for understanding the discrepancy between gold
prices and inflation, and then determining whether to continue investing in gold.
The choice “B” suggest further research , which my contradict a previous belief, is unappealing to
individuals with confirmation bias.
How to prevent from Confirmation Bias

Diverse Information sources

Keep a decision journal

Use decision- making

Frameworks

Diversify your portfolio

REGRET AVERSION BIAS

What is Regret Aversion biases ?

People tend to avoid taking actions that

might lead to regret in the future, even if
those actions might be the rational or
optimal choice. They are afraid of
looking back and feeling like they made a
wrong decision, so they often stick with
the familiar or safe options, even if they
might miss out on better opportunities.
1) REGRET AVERSION BIAS QUESTIONS:

Suppose that you make an investment in Stock ABC and that over the next 12 months ABC appreciates by 10
percent. You contemplate selling ABC for normal portfolio rebalancing purposes, but then come across an
item in the Wall Street Journal that sparks new optimism: Could ABC climb even higher? Which answer
describes your likeliest response, given ABC’s recent performance and this new information?

(A) I think I’ll hold off and sell later. I’d really kick myself if I sold now
and ABC continued to go up.

(B) I’ll probably sell. But I’ll still kick myself if ABC appreciates later on.

(C) I’ll probably sell the stock without any second thoughts—regardless of
what happens to ABC’s price after the transaction.
Interpretation:

50% respondent believe to delay selling and will wait until later, as they will be disappointed if they sold
now and as they believe ABC will continue to rise.
In this question respondents selected option “A” they harbor susceptibility to regret aversion.
2) REGRET AVERSION BIAS QUESTIONS:

Suppose that you’ve decided to acquire 200 shares of LMN Company. You purchase 100 shares now at $30
apiece and strategize to wait a few days before picking up the additional 100. Further suppose that soon after
your initial buy, the market takes a comprehensive dip. LMN is now trading at $28, with no change in
fundamentals. Which answer most closely matches your thought process in this situation?

(A) I will probably wait until the stock begins to go back up before buying
the remaining 100 shares. I really don’t want to see LMN fall below $28
because I’d regret my initial decision to buy in.

(B) I will probably buy the remaining 100 shares. If LMN ends up going
below $28, though, I will regret my decision.

(C) I will probably buy the remaining 100 shares. Even if LMN falls below
$28, I don’t think I’ll experience a lot of regret.
Interpretation:
40% respondents believes that they should purchase the remaining 100 share of LWN, assuming that a
drop below $28 they will not regret.
In this question majority respondent have selected option “c “ they are not suffering from regret aversion
bias
3) REGRET AVERSION BIAS QUESTIONS:
Suppose you have decided to invest $5,000 in the stock market. You have narrowed your choices down to two companies: Big City
Company, Inc, and Small Town Company, Inc. According to your calculations, both stocks have equal risk and return payoffs.
Big City is a well-followed, eminently established company, whose shareholders include many large pension funds. Small Town
has performed well but has not garnered the same kind of public profile as Big City. It has few well-known investors. Which
answer most closely
matches your thought process in this situation?

(A) I will most likely invest in Big City Company because I feel safe taking the same
course as so many respected institutional investors. If Big City does decline in value, I
know I won’t be the only one caught by surprise and with so many savvy professionals
sharing my predicament, I could hardly blame myself for excessively poor judgment..
(B) I will most likely invest in Big City Company because if I invested in Small Town
Company and my investment failed, I would feel like a fool. Few well-known investors
backed Small Town Company, and I would really regret going against their informed
consensus only to discover that I was dead wrong.

(C) I would feel indifferent between the two investments, since both generated the same
expected parameters for risk and return.
Interpretation:

55% respondents believes to invest in big city company due to the safety of following the lead of other
respected institutional investor and professionals.
In this question majority respondent option “A” they harbor susceptibility to regret aversion.
How to prevent from Regret Aversion Bias

Long- Term perspective

Diversification

Avoid Chasing Trends

Regularly Review and

rebalance
Thank
You!