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By Jason Stipp | 07-31-2013 12:00 PM

Test Your Own Behavioral Finance Failings

See how human tendencies can get in the way of rational investment decision-making.

Jason Stipp: I'm Jason Stipp for Morningstar.

Behavioral biases can affect lots of areas of our lives and can be costly when it comes to our financial lives and our investing.

Joining us to demonstrate how behavioral biases can play out is Raife Giovinazzo. He is director of research at Fuller & Thaler and also a co-manager of Allianz Global Investors Behavioral Advantage Large-Cap Fund.

Thanks for being here, Raife.

Raife Giovinazzo: Thanks for having me.

Stipp: We are going to play a little game. You have a few questions that hopefully will demonstrate how some behavioral biases play out. Certainly, feel free to play along at home as well. We'll see just how badly we can be biased in some of these answers. You have a few questions. Let's give it a go and start off with the first one.

Giovinazzo: This is an actual survey that was given by James Montier in his book Behavioural Investing, that he gave to 300 portfolio managers, who manage money for a living, to illustrate the behavioral biases. So, if you are biased and I'm biased, that's OK. It's perfectly normal.

So, three simple questions: first question is hopefully very easy. What are the last four digits of your work phone number?

Stipp: 3745.

Giovinazzo: OK, great. Second question is the number of doctors in London. Do you think it's more or less than your phone number, that four-digit number? Just say "more" or "less."

Stipp: More.

Giovinazzo: More. OK. Third question, what do you think the number of doctors in London is?

Stipp: I would say 5,000.

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