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1.
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.
2.
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.
3.
Which of the following examples illustrates selective memory?
Remembering only the successes. Selective memory, as a rule, selects those memories that we want to preserve.
4.
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.
5.
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.
6.
Mental accounting refers to _______.
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.
7.
In the psychology of investing, the "framing effect" refers to _______.
Using a reference point to make investment decisions. Because this reference point can be subjective, it can lead to some rash decisions.
8.
In investing, overconfidence means thinking that we are more capable than we really are.
True. Overconfidence is an unhealthy extension of confidence.
9.
What does anchoring often lead to?
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.
10.
What does regret often lead to?
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.
