Help
Course Catalog > Stocks > 400
Stocks 407: Psychology and Investing

Test your knowledge

Choose wisely. There is only one correct answer to each question.

0%
Keep studying!
Review your answers below to learn more.
1.
Mental accounting refers to _______.
Choose wisely. There is only one correct answer.
Keeping our money in different buckets for different purposes. While this practice is often beneficial, it can sometimes lead to wasteful spending depending on how we view those buckets.
2.
In investing, sunk costs refer to costs that have already been incurred.
Choose wisely. There is only one correct answer.
True. If the costs of an investment are high, we might become reluctant to dump it due to how much we have put into it.
3.
In investing, self-handicapping might be considered the opposite of _______.
Choose wisely. There is only one correct answer.
Overconfidence. Self-handicapping involves looking for excuses beforehand to explain why something might not work. If it indeed does not work, we have handicapped ourselves.
4.
Which of the following examples illustrates selective memory?
Choose wisely. There is only one correct answer.
Remembering only the successes. Selective memory, as a rule, selects those memories that we want to preserve.
5.
When you judge an investment by objective standards rather than your own personal ones, you are practicing what is called "anchoring."
Choose wisely. There is only one correct answer.
False. Anchoring is the other way around, and in some cases it can lead to costly losses.
6.
An example of the psychological concept of loss aversion is _______.
Choose wisely. There is only one correct answer.
Holding onto a poorly performing stock. The fear of loss is so great in some people that they will hold on to stocks that are tanking badly, even when they see no real reason for it.
7.
The framing effect can lead you to treat buying decisions in relative terms.
Choose wisely. There is only one correct answer.
True. This effect can affect the choices you make when you buy investments.
8.
Investors who exhibit "herding" behavior tend to think that other investors have more information than they do.
Choose wisely. There is only one correct answer.
True. Herding refers to investing along with the crowd. This usually entails believing that others have information that you dont.
9.
In the world of investing, what does overconfidence refer to?
Choose wisely. There is only one correct answer.
The ability to think that one is smarter than one really is. Overconfidence stretches normal confidence to unhealthy levels.
10.
Confirmation bias is the practice of _______.
Choose wisely. There is only one correct answer.
Giving preference to information that supports what we already believe. This practice can sometimes limit our success with investing by shutting out other opportunities.