Behavioral Finance

Question 1

Loss aversion

Answer 1

You fear losses much more than you value gains, and you prefer avoiding losses to acquiring the same amount in gains.

Question 2

Overconfidence

Answer 2

You believe that you control random events merely by acquiring more knowledge and consider your abilities to be much better than they are.

Question 3

Self-control bias

Answer 3

You lack self-discipline and favor immediate gratification over long-term goals.

Question 4

Status quo bias

Answer 4

You are comfortable with an existing situation, which leads to an unwillingness to make changes, even though the changes are beneficial.

Question 5

Endowment bias

Answer 5

You think an asset you own is worth more than it is because it is yours.

Question 6

Regret aversion bias

Answer 6

You do nothing out of excess fear that your decisions or actions could be wrong.

Question 7

Affinity bias

Answer 7

You make decisions based on how you believe the outcomes will represent your interests and values.

Question 8

Risk tolerance

Answer 8

the tradeoff that clients are willing to make between potential risks and rewards

Question 9

Risk perception

Answer 9

the client’s assessment of the magnitude of the risks being traded off

Question 10

Risk capacity

Answer 10

the degree to which a client’s financial resources can cushion risks

Question 11

Attitudes

Answer 11

reflect a person’s opinions, values, and wants

Question 12

Beliefs

Answer 12

a type of attitude because they reveal the understanding of some aspect of a person’s life. Attitudes and beliefs for which a person feels strongly are considered values and represent what a person believes to be right.