Choose wisely. There is only one correct answer to each question.
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1.
With regard to investing behavior, mental accounting refers to following the crowd.
False. Mental accounting refers to keeping ones money in different buckets for different purposes.
2.
In investing, self-handicapping might be considered the opposite of _______.
Overconfidence. Self-handicapping involves looking for excuses beforehand to explain why something might not work. If it indeed does not work, we have handicapped ourselves.
3.
The framing effect can lead you to treat buying decisions in relative terms.
True. This effect can affect the choices you make when you buy investments.
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.
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.
6.
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.
7.
What does investing with the crowd often lead to?
Choosing investments that are inappropriate for your goals. Following investment fashion can lead to fading performance or inappropriate investments for your particular goals.
8.
What does overconfidence in investing often lead to?
Rapid trading. Overconfident investors trade more rapidly because they think they know more than those on the opposite end of the trade.
9.
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.
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.