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.
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.
2.
An example of sunk costs is _______.
Choose wisely. There is only one correct answer.
Holding on to a stock for too long because you have put a lot of money into it. When we have "sunk" money into something, we may be reluctant to let go of it when it turns into a loser.
3.
What does regret often lead to?
Choose wisely. There is only one correct answer.
Making a bad sell decision because youve confused a bad outcome with a bad decision. You may feel regret after a bad outcome, such as a stretch of weak performance from a given stock, even if you chose the investment for all the right reasons and the underlying business remains strong. Regret can lead you to make a bad sell decision.
4.
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.
5.
If you find yourself habitually buying shares of a company that has treated you well in the past, even when the data suggest it would be unwise, you could be operating under confirmation bias.
Choose wisely. There is only one correct answer.
True. Though its not always a bad thing, investing against the reality of the company can sometimes be detrimental.
6.
Mental accounting is a psychological practice that refers to keeping our investments in good condition.
Choose wisely. There is only one correct answer.
False. Mental accounting really means putting our money in different buckets for different purposes. Its not always harmful, but sometimes it can inadvertently lead to wasteful spending.
7.
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.
8.
What does anchoring often lead to?
Choose wisely. There is only one correct answer.
An unwillingness to part with laggard investments. Investors often cling to investments in order to wait for a point at which they will break even, even if the underlying business has fundamentally changed for the worse.
9.
Self-handicapping bias occurs when we try to explain any possible future poor performance with a reason that may or may not be true.
Choose wisely. There is only one correct answer.
True. In other words, its like making excuses beforehand.
10.
In investing, overconfidence means thinking that we are more capable than we really are.
Choose wisely. There is only one correct answer.
True. Overconfidence is an unhealthy extension of confidence.