Cognitive Errors in Portfolio Management

Jane is a portfolio manager at a large investment firm. Recently, she has been evaluating two mutual funds: Fund A, which has consistently delivered above-average returns, and Fund B, which has experienced higher volatility but recent improved performance.

Despite the evidence suggesting that Fund B may have higher future potential, Jane nonetheless decides to increase her allocation to Fund A. She recalls how Fund A has performed well over the years and feels a stronger emotional connection to it.

Jane's decision exemplifies a cognitive error in behavioral finance. What type of cognitive error is she likely exhibiting in her analysis of the mutual funds?