Psychology

Question 1

The tendency to place more value on items an investor already owns than items they do not. Has more to do with TIME of ownership.

Answer 1

endowment bias (divestiture aversion)

Question 2

The tendency to make decisions based on HOW information is presented, which can be a narrow scope, rather than a full set of facts

Answer 2

framing

Question 3

The tendency to disregard probability when making a decision under uncertainty

Answer 3

neglect of probability bias

Question 4

The tendency to use stereotypes across all situations and investments that appear to be similar but are not the same

Answer 4

representative bias

Question 5

An individual erroneously believes that the onset of a certain random event is less likely to happen following an event or series of events

Answer 5

gambler’s fallacy (monte carlo fallacy)

Question 6

Gambler’s fallacy is also called:

Answer 6

monte carlo fallacy

Question 7

The 20/20 vision we have when looking at a past event and thinking we understand it

Answer 7

hindsight bias (creeping determinism or knew-it-all-along effect)

Question 8

The tendency to make decisions based on small sets of data or limited information

Answer 8

law of small numbers (approximation)

Question 9

Mental accounting is also called:

Answer 9

psychological accounting

Question 10

Entails looking at sums of money differently, depending on their source of intended use

Answer 10

mental accounting (psychological accounting)

Question 11

Sunk cost fallacy is also called:

Answer 11

concorde fallacy

Question 12

The tendency to place too much emphasis on one’s own abilities

Answer 12

overconfidence

Question 13

The tendency to keep an investment based on resources committed to it (keep putting money into losers)

Answer 13

sunk cost fallacy (concorde fallacy)

Question 14

Investors are risk-averse when it comes to gains (don’t want to give them up) and risk seekers with losses (will take big risks to avoid them). People will opt for a SURE GAIN rather than a chance to win more

Answer 14

prospect theory (disposition effect or loss aversion)

Question 15

Judges merits of a decision solely on its outcome vs. the quality of a decision at the time

Answer 15

outcome bias

Question 16

The tendency for people to prefer fixed payments vs. variable ones

Answer 16

flat rate bias

Question 17

Endowment bias is also called:

Answer 17

divestiture aversion

Question 18

A tendency for investors to make decisions based on the most repeated news they hear, even if those facts are incorrect or irrelevant

Answer 18

persuasion bias (social influence)

Question 19

Recency bias is also called:

Answer 19

experiential bias

Question 20

Loss aversion is also:

Answer 20

disposition effect or prospect theory

Question 21

The bias where we tend to make decisions based on the most readily available information (but not necessarily the most relevant). Typically information learned via heuristics or information that was often repeated

Answer 21

availability bias

Question 22

Confirmation bias is also called:

Answer 22

congeniality bias

Question 23

The tendency to take no action rather than risk taking the wrong one

Answer 23

fear of regret

Question 24

Anchoring is also called:

Answer 24

focalism

Question 25

What are the main characteristics of the January Effect?

Answer 25

1. an increase in buying securities before Dec. 31
2. selling in January to generate a profit

Question 26

The act of enabling people to learn things on their own

Answer 26

heuristics

Question 27

The tendency to accept any information that confirms our preconceived position and disregard any information that does not support that position

Answer 27

confirmation bias (congeniality bias)

Question 28

The discord that occurs when investors make decisions contrary to their actual beliefs

Answer 28

cognitive dissonance

Question 29

Investors can be prone to making decisions based on an investment having an attractive story behind it

Answer 29

narrative fallacy

Question 30

The tendency to place more meaning on facts that are more emotionally stimulating or vivid

Answer 30

salience bias

Question 31

Persuasion bias is also called:

Answer 31

social influence

Question 32

The tendency to make decisions based on the most recent information available

Answer 32

recency bias (experiential bias)

Question 33

Investors attaching to a specific price or to any fact regarding an investment

Answer 33

anchoring (focalism)

Question 34

Drawing incorrect conclusions from misguided heuristics

Answer 34

cognitive bias

Question 35

Hindsight bias is also:

Answer 35

knew-it-all-along effect or creeping determinism

Question 36

Law of small numbers is also called:

Answer 36

approximation