An investor refuses to sell shares she inherited from her father, even though they no longer fit her investment strategy, simply because she values them more for being hers. Which emotional bias, as described in the NISM workbook, does this illustrate?

[ A ]Endowment Bias, an emotional bias combining valuing-ownership and loss aversion, under which people value an asset more highly when they hold rights to it than when they do not[ CORRECT ]

[ B ]Status Quo Bias

[ C ]Stereotyping Bias

[ D ]Regret Aversion Bias

Takeaway

Option A is correct: this is Endowment Bias.

Derivation

The NISM workbook defines Endowment Bias as 'an emotional bias in which people value an asset more when they hold rights to it than when they do not,' noting it has two attributes, valuing ownership and loss aversion, and observing that 'inherited stocks are rarely sold even if they do not fit into the overall investment strategy.' This is easily confused with Status Quo Bias, which is about avoiding decisions generally and is closely linked to Regret Aversion, rather than specifically overvaluing something because one owns it.

Why the others fail

B — Status Quo Bias

Status Quo Bias is about avoiding any decision at all out of fear that an active choice will turn out poorly, not specifically about overvaluing an asset because one owns it.

C — Stereotyping Bias

Stereotyping Bias is about basing a decision on representative characteristics of a group, such as a high-profile manager, not on attachment to an already-held asset.

D — Regret Aversion Bias

Regret Aversion Bias is about avoiding decisions to prevent the more intense regret of an error of commission, which is distinct from simply valuing an owned asset more highly.