Behavioural

Question 1

Behavioural Finance

Answer 1

Representativeness
Ambiguity aversion
Positive feedback and extrapolative expectations
Narrow framing
Overconfidence
Conservatism
Cognitive dissonance
Availability bais
Miscalculation of proabilities

Question 2

Overconfidence

Answer 2

Investors tend to overestimate trading abilities and gloss over areas they lack knowledge, can lead to bad investments.
overestimate accuracy of their forecasts
linked to self attribution (success to them, failures others)

Question 3

Representativeness

Answer 3

Judgement based too heavily on representative observation, don’t take into account other factors
past performance used to predict future

Question 4

Narrow framing

Answer 4

unable to look at broader picture
(worry about short term when want to fund long term)

Question 5

Miscalculation of probabilities

Answer 5

low probability to likely and too high to unlikely
Dotcom buble

Question 6

Ambiguity aversion

Answer 6

afraid of areas where they don’t have much information and prefer familiar (avoid overseas)

Question 7

Positive feedback and extrapolative expectations

Answer 7

buy shares after prices rise, sell after they fall. expect continue rise and form
bubbles

Question 8

Cognitive dissonance

Answer 8

long held belief - continue to hold even if evidence contradicts

Question 9

Availability bias

Answer 9

pay attention to one fact or event as more recent/prominent

Question 10

Conservatism

Answer 10

investors naturally conservative and resistant to changing their opinions.