1.
The bias where investors favor information that supports their pre-existing beliefs is called:
A
Confirmation Bias
B
Representativeness Bias
C
Hindsight Bias
D
Availability Bias
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The bias where investors favor information that supports their pre-existing beliefs is called:
Confirmation Bias
Representativeness Bias
Hindsight Bias
Availability Bias
The tendency to follow the crowd or take actions that others are taking is known as:
Herding Effect
Anchoring Bias
Disposition Effect
Loss Aversion
The phenomenon where individuals overestimate their ability to predict outcomes is known as:
Overconfidence Bias
Anchoring Bias
Confirmation Bias
Mental Accounting
Which of the following refers to the tendency of individuals to make decisions based on irrelevant information?
Framing Effect
Representativeness Heuristic
Sunk Cost Fallacy
Availability Bias
Which theory suggests that investors cannot process all information and therefore make decisions based on limited data?
Prospect Theory
Efficient Market Hypothesis
Bounded Rationality
Behavioral Portfolio Theory
What is the phenomenon called when individuals rely on recent information to make judgments, ignoring prior data?
Availability Heuristic
Recency Bias
Hindsight Bias
Confirmation Bias
What does the concept of "loss aversion" imply in behavioral finance?
Investors fear losing more than they value gaining
Investors are indifferent to losses and gains
Investors avoid risk entirely
Investors prefer high risk
The tendency of individuals to avoid making decisions that might result in losses is known as:
Loss Aversion
Endowment Effect
Mental Accounting
Overconfidence Bias
What does "anchoring" refer to in behavioral finance?
Relying too heavily on initial information
Following others' actions blindly
Ignoring new information
Risk-averse behavior
What is the role of emotions in behavioral finance?
They lead to irrational decision-making
They enhance decision-making process
They have no impact on decisions
None of the above
Which of the following is NOT an example of behavioral finance bias?
Anchoring Bias
Loss Aversion
Herding
Rational Expectations
According to behavioral finance, which of the following can lead to mispricing in financial markets?
None of the above
Cognitive biases
Rational decision-making
Complete information availability
The "disposition effect" is best demonstrated by which behavior?
Investors follow others without analysis
Investors holding on to losing stocks too long
Investors sell profitable stocks early
Investors diversify too much
The belief that the market will move in the same direction after a recent trend is called:
Hindsight Bias
Recency Bias
Representativeness Bias
Confirmation Bias
Which of the following best describes the "anchoring effect"?
Rejecting initial information
Reliance on the first piece of information to make judgments
Avoiding information overload
Evaluating all available data thoroughly
What is the "planning fallacy" in behavioral finance?
Overvaluing assets
Overestimating the ability to plan and execute
Underestimating risks
Misjudging future market trends
The tendency of individuals to overestimate their knowledge and expertise in predicting outcomes is called:
Mental Accounting
Illusion of Knowledge
Overconfidence Bias
Loss Aversion
The tendency to stick with an investment even when it's performing poorly is known as:
Disposition Effect
Loss Aversion
Mental Accounting
Endowment Effect
According to behavioral finance, the overreaction of stock prices is most often driven by:
High liquidity
Investor sentiment
Rational analysis
Efficient market behavior
What does "herd behavior" in finance refer to?
Disregarding market trends
Following the crowd blindly
Analyzing individual investment opportunities
Risk avoidance