Psychology of Financial Planning

Question 1

The tendency of investors to become attached to a specific price as FMV of a holding…which bias?

Answer 1

Anchoring Bias

Question 2

The tendency to hold onto an investment for emotional reasons…which bias?

Answer 2

Attachment Bias

ex: grandparent left me the stock

Question 3

The tendency to make decisions based on info most readily available or easy to recall (but not necessarily relevant)…which bias?

Answer 3

Availability Bias

Question 4

Discord felt when investors make decisions contrary to their actual beliefs…which bias?

Answer 4

Cognitive Dissonance

ex: conservative investor suddenly places all money in crypto and changes stance to match decision.

Question 5

The tendency to accept any info that verifies our preconceived notion and disregard what doesn’t support our notion…which bias?

Answer 5

Confirmation Bias

Question 6

The tendency to invest evenly across all options presented to an investor…which bias?

Answer 6

Diversification Errors

ex: 401k participants who spread across all options

Question 7

The tendency to place more value on items an investor already owns…which bias?

Answer 7

Endowment Bias

ex: car shopper who spends time test driving (perceived ownership) and thus spends more money

Question 8

The tendency to invest in what the investor already knows based on their experience…which bias?

Answer 8

Familiarity Bias

Question 9

The tendency to take no action rather than risk making the wrong one…which bias?

Answer 9

Fear of Regret

Question 10

The tendency to prefer even payment streams versus variable ones…which bias?

Answer 10

Flat Rate Bias

ex: starting pension or annuity payouts too soon

Question 11

The belief that the onset of a certain random event is less likely to happen following an event or a series of events…which bias?

Answer 11

Gambler’s Fallacy

ex: holding onto a declining stock believing further declines are improbable

Question 12

The tendency for individuals to mimic the actions of a larger group…which bias?

Answer 12

Herd Behavior

ex: late 90s investments in internet-related companies

Question 13

The tendency to look at an event afterwards and think we understood it…which bias?

Answer 13

Hindsight Bias

Question 14

The tendency to make decisions based on small data sets or limited info…which bias?

Answer 14

Law of Small Numbers

ex: looking only at a stock’s moving 90-day average and deciding to invest

Question 15

The tendency to look at sums of money differently depending on their source or intended use…which bias?

Answer 15

Mental Accounting

Question 16

Judging a decision based solely on its results versus the quality of the decision at the time…which bias?

Answer 16

Outcome Bias

Question 17

Our influence over a group’s opinion has to do not only with accuracy of facts we present but also our level of influence and standing…which bias?

Answer 17

Persuasion/Social Influence Bias

Question 18

The tendency to make decisions based only on the latest info available…which bias?

Answer 18

Recency Bias

Question 19

The tendency to use stereotypes across situations and investments that appear similar but may not be the same…which bias?

Answer 19

Representative Bias

Question 20

The tendency to place more meaning on facts that are more emotionally stimulating or vivid…which bias?

Answer 20

Salience Bias

Question 21

The tendency to attribute success to your intelligence and ability to make the right decision and failure to either bad luck or someone else…which bias?

Answer 21

Self-Affirmation Bias

Question 22

The tendency to do nothing when action is called for…which bias?

Answer 22

Status Quo Bias

Question 23

The tendency to keep an investment based on the resources already committed to it…which bias?

Answer 23

Sunk Cost Fallacy

Question 24

The concept where people are inclined to make less decisions when presented with more choices is called _____.

Answer 24

Paradox of Choice