Basics Beginner: Psychology and Investing

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1.
What is a good way as an investor to avoid falling prey to the framing effect?
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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.
With regard to investing behavior, mental accounting refers to following the crowd.
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False. Mental accounting refers to keeping ones money in different buckets for different purposes.
3.
When you judge an investment by objective standards rather than your own personal ones, you are practicing what is called "anchoring."
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False. Anchoring is the other way around, and in some cases it can lead to costly losses.
4.
An example of the psychological concept of loss aversion is _______.
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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.
5.
Self-handicapping bias occurs when we try to explain any possible future poor performance with a reason that may or may not be true.
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True. In other words, its like making excuses beforehand.
6.
Confirmation bias is the practice of _______.
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Giving preference to information that supports what we already believe. This practice can sometimes limit our success with investing by shutting out other opportunities.
7.
An example of sunk costs is _______.
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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.
8.
If you are holding two beliefs that are seemingly at odds with each other and you are uncomfortable doing so, then you are suffering from _______.
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Cognitive dissonance. Because of the discomfort, you will need a way to resolve the dissonance.
9.
What does overconfidence in investing often lead to?
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Rapid trading. Overconfident investors trade more rapidly because they think they know more than those on the opposite end of the trade.
10.
The practice of herding refers to _______.
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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.