Q

What implications does the representativeness heuristic have for fund managers?

From 5 years of verified research · Vassili Sandqvist
A

The representativeness heuristic can cause investors to mistakenly attribute short-term outperformance by fund managers to skill rather than chance. With only 2-3 years of good performance, fund managers are often perceived as skilled, despite the fact that the base rate of sustained outperformance over longer periods is very low, aligning more closely with random variation.

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