Choose wisely. There is only one correct answer to each question.
0%
Keep studying!
Review your answers below to learn more.
1.
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.
2.
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.
3.
The sunk costs fallacy refers to _______.
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.
4.
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.
5.
In investing, overconfidence means thinking that we are more capable than we really are.
True. Overconfidence is an unhealthy extension of confidence.
6.
The practice of herding refers to _______.
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.
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.
8.
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.
9.
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.
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.
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.
True. Though its not always a bad thing, investing against the reality of the company can sometimes be detrimental.