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.
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.
2.
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.
3.
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.
4.
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.
5.
A disadvantage of "anchoring" behavior in investing is that you might hold onto an investment longer than you should, given the fundamentals of the company behind it.
Choose wisely. There is only one correct answer.
True. As an investor, you might stick with an investment in order to wait for a point at which it will be "worth it" to you, which might lead to a loss on it.
6.
What is a good way as an investor to avoid falling prey to the framing effect?
Choose wisely. There is only one correct answer.
Consider the total return of your investments. Seeing your choice in terms of the total return can help you avoid framing it in relative terms, which can be costly.
7.
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.
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.
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.
What does investing with the crowd often lead to?
Choose wisely. There is only one correct answer.
Choosing investments that are inappropriate for your goals. Following investment fashion can lead to fading performance or inappropriate investments for your particular goals.