Behavioral Finance

What is overconfidence in the context of behavioral finance?

• Relying on instinct instead of analysis in making decisions

• Taking an overly pessimistic view of potential outcomes

• Belief that you can forecast the future with precision

• Belief that your abilities are worse than they really are

What is loss aversion and how is it likely to be costly?

• The reliance on stereotypes or limited samples to form opinions

• The tendency to focus on avoiding short-term losses, even at the expense of long-term gains

• The tendency to avoid making a decision because of fear of suboptimal outcomes

• The belief that other people are thinking the same thing you are thinking

What is noise trader risk in the context of behavioral finance?

• The risk associated with relying on stereotypes or limited samples to form opinions

• The risk associated with making decisions based on instinct instead of analysis

• The risk associated with avoiding making a decision due to fear of suboptimal outcomes

• The risk associated with trades not based on information or financially meaningful analysis

What do we learn from studying the historical performance of actively managed general equity funds?

• The growth of actively managed equity funds has led to increased market efficiency

• The performance of professional money managers is consistent with the notion that the equity market is efficient

• The equity market is inefficient due to irrational investor behavior

• Professional money managers consistently outperform index funds

What is the tendency to sell winners and hold losers known as?

• Loss aversion

• Confirmation bias

• Disposition effect

• Anchoring and adjustment

What is the law of small numbers in the context of behavioral finance?

• The tendency to avoid making a decision because of fear of suboptimal outcomes

• The belief that a small sample of outcomes always resembles the long-run distribution of outcomes

• The tendency to give recent events more importance than less recent events

• The reliance on stereotypes or limited samples to form opinions

What is the clustering illusion in the context of behavioral finance?

• The belief that random events that occur in clusters are not really random

• The reliance on instinct instead of analysis in making decisions

• The reliance on stereotypes or limited samples to form opinions

• The tendency to avoid making a decision because of fear of suboptimal outcomes

What is the misconception that arises from the human intuition about the overall odds of a random event in the short run?

• Gambler's fallacy

• Aversion to ambiguity

• Recency bias

• Anchoring and adjustment

What is the tendency to put too much weight on easily available information and too little weight on hard-to-obtain information known as?

• Availability bias

• Aversion to ambiguity

• False consensus

• Anchoring and adjustment

What is the phenomenon where observed prices soar far higher than fundamentals and rational analysis would suggest?

• Arbitrage

• Crash

• Market efficiency

• Bubble