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.
Confirmation bias is a good investing practice to follow because it usually leads to good decisions.
Choose wisely. There is only one correct answer.
False. While it sometimes does, it can also deprive us of choosing other, potentially good opportunities.
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.
Choose wisely. There is only one correct answer.
True. In other words, its like making excuses beforehand.
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.
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.
5.
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.
6.
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.
7.
A way to describe the psychological concept of loss aversion is this: strongly preferring to avoid losses over acquiring gains.
Choose wisely. There is only one correct answer.
True. This behavior can in some cases cause you to lose money.
8.
With regard to investing behavior, mental accounting refers to following the crowd.
Choose wisely. There is only one correct answer.
False. Mental accounting refers to keeping ones money in different buckets for different purposes.
9.
What does overconfidence in investing often lead to?
Choose wisely. There is only one correct answer.
Rapid trading. Overconfident investors trade more rapidly because they think they know more than those on the opposite end of the trade.
10.
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.