H.66 Behavioral finance

Question 1

Which of the following is NOT a bias associated with prospect theory?

A. Loss aversion
B. Overconfidence
C. Confirmation bias
D. Framing effect

Answer 1

B. Overconfidence

H.66 Behavioral finance

Question 2

Which of the following is an example of anchoring bias?

A. A financial advisor recommends a stock based on its current market price
B. A client focuses on the first investment option presented to them and does not consider any others
C. A client is influenced by the behavior of their peers when making investment decisions
D. A client sells a stock after experiencing a loss and refuses to buy it again even though its value has increased

Answer 2

B. A client focuses on the first investment option presented to them and does not consider any others

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Question 3

Which of the following is NOT a heuristic associated with judgmental biases?

A. Availability heuristic
B. Representativeness heuristic
C. Overconfidence heuristic
D. Anchoring heuristic

Answer 3

C. Overconfidence heuristic

H.66 Behavioral finance

Question 4

A client refuses to sell a losing stock because they believe it will recover soon. Which of the following behavioral biases is the client exhibiting?

A. Confirmation bias
B. Loss aversion
C. Overconfidence bias
D. Herding bias

Answer 4

C. Overconfidence bias

H.66 Behavioral finance

Question 5

Which of the following is an example of confirmation bias?

A. A client only reads news articles that confirm their existing beliefs about the stock market
B. A financial advisor recommends an investment based on its past performance
C. A client follows the advice of their peers when making investment decisions
D. A client is influenced by the first piece of information they receive about an investment

Answer 5

A. A client only reads news articles that confirm their existing beliefs about the stock market

H.66 Behavioral finance

Question 6

Which of the following biases is associated with the disposition effect?

A. Loss aversion
B. Framing effect
C. Anchoring bias
D. Availability bias

Answer 6

A. Loss aversion

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Question 7

Which of the following is an example of the framing effect?

A. A client chooses an investment based on its past performance
B. A financial advisor recommends a stock based on its current market price
C. A client is influenced by the behavior of their peers when making investment decisions
D. A client chooses an investment based on whether it is presented as a gain or a loss

Answer 7

D. A client chooses an investment based on whether it is presented as a gain or a loss

H.66 Behavioral finance

Question 8

Which of the following is an example of the availability bias?

A.e A client chooses an investment based on its past performance
B. A financial advisor recommends a stock based on its current market price
C. A client is influenced by the behavior of their peers when making investment decisions
D. A client overestimates the likelihood of a rare event because it is easy to recall

Answer 8

D. A client overestimates the likelihood of a rare event because it is easy to recall

H.66 Behavioral finance

Question 9

A client sells a stock after experiencing a loss, even though the stock’s value is likely to increase in the future. Which of the following behavioral biases is the client exhibiting?

A. Anchoring bias
B. Herding bias
C. Loss aversion
D. Overconfidence bias

Answer 9

C. Loss aversion

H.66 Behavioral finance

Question 10

Which of the following is an example of the endowment effect?

A. A client overestimates the likelihood of a rare event because it is easy to recall
B. A client refuses to sell an investment for less than its purchase price, even though it is currently worth less than that
C. A client is influenced by the behavior of their peers when making investment decisions
D. A client chooses an investment based on its past performance

Answer 10

B. A client refuses to sell an investment for less than its purchase price, even though it is currently worth less than that

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Question 11

John is a financial advisor who notices that his clients are often influenced by the behavior of their peers when making investment decisions. Which of the following biases is John’s clients exhibiting?

A. Confirmation bias
B. Herding bias
C. Framing effect
D. Overconfidence bias

Answer 11

B. Herding bias

H.66 Behavioral finance

Question 12

Sarah is a financial advisor who notices that her clients tend to be overly confident in their ability to predict market movements. Which of the following biases are Sarah’s clients exhibiting?

A. Availability bias
B. Confirmation bias
C. Overconfidence bias
D. Loss aversion

Answer 12

C. Overconfidence bias

H.66 Behavioral finance

Question 13

Mike is a financial advisor who notices that his clients tend to focus on the first investment they hear about and are reluctant to consider other options. Which of the following biases are Mike’s clients exhibiting?

A. Anchoring bias
B. Confirmation bias
C. Status quo bias
D. Framing effect

Answer 13

A. Anchoring bias

H.66 Behavioral finance

Question 14

Lisa is a financial advisor who notices that her clients often make investment decisions based on recent market trends, rather than long-term goals. Which of the following biases are Lisa’s clients exhibiting?

A. Herding bias
B. Availability bias
C. Confirmation bias
D. Endowment effect

Answer 14

A. Herding bias

H.66 Behavioral finance

Question 15

Bob is a financial advisor who notices that his clients tend to sell their investments after experiencing a loss, even if it means missing out on potential future gains. Which of the following biases are Bob’s clients exhibiting?

A. Loss aversion
B. Confirmation bias
C. Overconfidence bias
D. Endowment effect

Answer 15

A. Loss aversion

H.66 Behavioral finance

Question 16

Maria is a financial advisor who notices that her clients are more likely to invest in a company if they are familiar with the brand, even if it is not a good investment. Which of the following biases are Maria’s clients exhibiting?

A. Framing effect
B. Confirmation bias
C. Status quo bias
D. Availability bias

Answer 16

D. Availability bias

H.66 Behavioral finance

Question 17

Sam is a financial advisor who notices that his clients tend to make decisions based on the most recent information they receive, rather than considering the overall picture. Which of the following biases are Sam’s clients exhibiting?

A. Confirmation bias
B. Anchoring bias
C. Availability bias
D. Recency bias

Answer 17

D. Recency bias

H.66 Behavioral finance

Question 18

Jane is a financial advisor who notices that her clients are more likely to take risks when they have recently experienced a gain and more likely to avoid risks when they have recently experienced a loss. Which of the following biases are Jane’s clients exhibiting?

A. Loss aversion
B. Confirmation bias
C. Framing effect
D. Recency bias

Answer 18

D. Recency bias

H.66 Behavioral finance

Question 19

Mark is a financial advisor who notices that his clients tend to overestimate their own abilities when making investment decisions. Which of the following biases are Mark’s clients exhibiting?

A. Overconfidence bias
B. Confirmation bias
C. Hindsight bias
D. Anchoring bias

Answer 19

A. Overconfidence bias

H.66 Behavioral finance

Question 20

John is a financial advisor who notices that his clients often have difficulty admitting when they have made a mistake in their investment decisions. Which of the following biases are John’s clients exhibiting?

A. Confirmation bias
B. Hindsight bias
C. Overconfidence bias
D. Cognitive dissonance

Answer 20

D. Cognitive dissonance

H.66 Behavioral finance

Question 21

What is one major emotion clients might feel when discussing their financial past?

A. Indifference
B. Excitement
C. Anxiety or shame
D. Eagerness

Answer 21

C. Anxiety or shame

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Question 22

Jane, a 35-year-old individual, inherited a substantial sum from a family trust, which means she has never had to work a day in her life. However, she often finds herself unsatisfied with her activities and has been gradually depleting the trust’s principal. Jane assumes that her trustee will manage all financial concerns. As a CFP® professional advising Jane, what would be the MOST suitable approach to illustrate to her?

A. The trust funds have granted Jane the privilege of a carefree lifestyle.
B. The financial reliance on the trust has potentially hampered Jane’s drive, innovation, and ambition.
C. Jane might have developed a shopping addiction that requires attention.
D. The trust may have fostered feelings of guilt in Jane, leading to a complex relationship with wealth.

Answer 22

B. The financial reliance on the trust has potentially hampered Jane’s drive, innovation, and ambition.

H.66 Behavioral finance

Question 23

As a CFP® professional, what is the best way to help clients deal with their past financial decisions?

A. Focus solely on the past
B. Critique every past decision
C. Recognize that they can’t change the past but discuss the present and future
D. Avoid discussing the past altogether

Answer 23

C. Recognize that they can’t change the past but discuss the present and future

H.66 Behavioral finance