Choose wisely. There is only one correct answer to each question.
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1.
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.
True. Though its not always a bad thing, investing against the reality of the company can sometimes be detrimental.
2.
Self-handicapping bias occurs when we try to explain any possible future poor performance with a reason that may or may not be true.
True. In other words, its like making excuses beforehand.
3.
When you judge an investment by objective standards rather than your own personal ones, you are practicing what is called "anchoring."
False. Anchoring is the other way around, and in some cases it can lead to costly losses.
4.
What is a good way as an investor to avoid falling prey to the framing effect?
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.
5.
Mental accounting is a psychological practice that refers to keeping our investments in good condition.
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.
6.
In the world of investing, what does overconfidence refer to?
The ability to think that one is smarter than one really is. Overconfidence stretches normal confidence to unhealthy levels.
7.
In investing, sunk costs refer to costs that have already been incurred.
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.
8.
What does representativeness lead to?
Giving too much weight to recent performance. Representativeness is a mental shortcut that causes investors to give too much weight to recent evidence--such as short-term performance numbers--and too little weight to evidence from the more distant past. For instance, a look at a companys profit trends over the past six years is likely to yield more insight than looking at that companys stock performance over the past six months.
9.
Investors who exhibit "herding" behavior tend to think that other investors have more information than they do.
True. Herding refers to investing along with the crowd. This usually entails believing that others have information that you dont.
10.
A way to describe the psychological concept of loss aversion is this: strongly preferring to avoid losses over acquiring gains.
True. This behavior can in some cases cause you to lose money.
