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.
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.
2.
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.
3.
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.
4.
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.
5.
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.
6.
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.
7.
The practice of herding refers to _______.
Choose wisely. There is only one correct answer.
Going along with the crowd. This is the practice of buying and selling based on the fact that it is popular to do so at the time.
8.
The sunk costs fallacy refers to _______.
Choose wisely. There is only one correct answer.
Being unable to ignore the sunk costs of an investment. Being unable to ignore these costs could lead to holding onto the investment well past the time to sell it.
9.
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.
10.
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.