Behavioral finance Quiz Flashcards
Conventional theories presume that investors _ and behavioral finance presumes that they _.
A. may not be rational; may not be rational
B. may not be rational; may not be rational
C. are irrational; are irrational
D. are rational; may not be rational
Ans: D
Forecasting errors are potentially important because
A. none of this are correct
B. research suggests that people overweight recent information
C. research suggests that people correctly weight recent information
D. research suggests that people underweight recent information
Ans: B
Information processing errors consist of I. forecasting errors II. overconfidence III. conservatism IV. framing
A. III and IV B. I, II and III C. I and II D. I and III Ans: B
If a person gives too much weight to recent information compared to prior beliefs, they would make _ errors.
A. overconfidence B. conservatism C. forecasting D. framing Ans: C
Single men trade far more often than women. This is due to greater overconfidence among men.
True
_ bias means that investors are too slow in updating their beliefs in response to evidence.
A. framing B. regret avoidance C. conservatism D. overconfidence Ans: C
Psychologists found people who make decisions turn out badly blame themselves more when that decision was unconventional. This phenomenon is called:
A. Regret avoidance B. Mental accounting C. Obnoxicity D. Framing Ans: A
Arbitrageurs may be unable to exploit behavioral biases due to _ I. fundamental risk II. implementation costs III. model risk IV. conservatism V. regret avoidance
A. I and II B. All of the above C. II, III and IV D. I, II and III Ans: D
Markets would be inefficient if irrational investors _ and actions if arbitragers were_ .
A. did not exist; limited B. did not exist; unlimited C. existed; limited D. existed, unlimited Ans: C
_ can lead investors to misestimate the true probabilities of possible events or associated rates of return.
A. regret avoidance B. framing errors C. mental accounting errors D. information processing errors Ans: D
