Tesco Business Bias

For this particular case, the behavioural biases that were identified are the “heuristic simplification” by displaying “representativeness” and “anchoring” and “self-deception” by presenting “confirmation”.
Representativeness bias characterises the tendency to assess a situation under uncertainty by comparing it to stereotypes or generalities. Consequently, it may be considered as a “mental shortcut” that facilitates individuals evade the need to analyse similar procedures repeatedly (Gilovich and Savitsky, 1996; Kahneman and Tversky, 1972). In relation to portfolio’s choices, representativeness was evident as successful companies were chosen. For instance, Tesco’s (TSCO.L) selection was based largely on the company’s strong position on the grocery retail sector, as it was created the false impression that “good firms are good investments” (Redhead, 2008, p.26). Tesco’s present success, combined with estimates for short-term growth led to the belief that the firm constitutes a successful long-term investment (Jain et al., 2015). Furthermore, through this reasoning, determinants of success/failure (e.g., increasing competition, declining consumer purchasing power) which may affect Tesco’s future performance were overlooked (Wild, 2018).
Anchoring describes the phenomenon in which

Contrariwise, portfolios with domestic and international equities provides considerable reduction of systematic risk, as assets from different economies present low correlation (Kristof, 2013; Redhead, 2008). Nonetheless, with growing globalisation, economies are increasingly becoming more interconnected, resulting in higher correlations/interactions among different financial markets. Therefore, the solution might be the partly domestic investment combined with assets from both emerging and developed economies (Armstrong,