Home > Investing Basics > Beginner
Investing Basics Beginner: 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.
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.
4.
Investors who exhibit "herding" behavior tend to think that other investors have more information than they do.
Choose wisely. There is only one correct answer.
True. Herding refers to investing along with the crowd. This usually entails believing that others have information that you dont.
5.
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.
6.
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.
7.
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.
8.
Self-handicapping bias occurs when we _______.
Choose wisely. There is only one correct answer.
Think of excuses before we do something to justify failure just in case it happens. These excuses can sabotage our performance.
9.
An example of sunk costs is _______.
Choose wisely. There is only one correct answer.
Holding on to a stock for too long because you have put a lot of money into it. When we have "sunk" money into something, we may be reluctant to let go of it when it turns into a loser.
10.
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.
Choose wisely. There is only one correct answer.
True. Though its not always a bad thing, investing against the reality of the company can sometimes be detrimental.