Module 11 (Behavioural Finance)

_____ can be defined as the science of applying psychology to finance.

Which of the behavioral bias the investor has is referred to here: “Newly acquired information conflicts with a pre-existing understanding, people may experience mental discomfort.”

_____ refers to the specific denial of, or under-reaction to new information, because it may negate a previous forecast or information that led to making the original decision.

Identify the investor behavior bias here: “A type of selective perception that emphasizes ideas that confirm our beliefs, while devaluing whatever might contradict them.”

Which biasness is reflected from the investor relying on stereotypes to make a decision.

People betting money in casinos illustrate which of the following?

People tend to overestimate the accuracy of their own predictions. As a result, people may tend to overestimate their prediction ability and underestimate actual levels of uncertainty. Which biasness it represents?

_____ is the tendency to categorize and evaluate economic outcomes by grouping assets into non-interchangeable accounts. This causes various assets/income streams to be treated differently than others, based on where these amounts are recognized.

_____ is the tendency to respond to various situations differently based on the context in which a choice is presented or framed.

_____ is the tendency of investors to prefer home market (i.e. domestic) investments rather than foreign investments, due to the perception of less uncertainty with the home market.

_____ is the tendency of individuals to ascribe their successes to talent or foresight while blaming failures on outside influences.

Which of the following biasness causes an individual to place more emphasis on recent events than those that occurred in the past?

_____ assumes that losses and gains are valued differently, and thus individuals make decisions based on perceived gains instead of perceived losses.

The concept of _____ draws on the tendency to attach our thoughts to a reference point – even though it may have no logical relevance to the decision at hand.

Believing that bad events (or investments) will not happen to “me” only to other people, is delusional. Such investor shows what type of emotional biases?

Mr. D is a person with the tendency to consume today rather than save for tomorrow. Which type of biasness is this?

_____ is placing a higher value on owned assets over assets that are not owned.

In the fear that any decisive action may prove to be less than optimal, the individual attempts to reduce or eliminate the pain of regret associated with poor decision-making. What is this behaviour called ?

Mr. F enjoys holding on to their money. It is difficult for him to spend money on luxury or pleasurable items for himself or his loved ones. To which category he belongs?

Mr. J tries to avoid having too much money. They would feel guilty if they received a large amount of money unexpectedly. Which category will he belong to?

For Mr. D safety and security of money is above all else. He doesn’t like financial surprises and prefers low-risk investments, even if they produce low returns. Which category does he belong?

Investors who are overly concerned with keeping large amounts of money at their disposal to spend, save and invest. Which category they belong to?

Behavioral finance suggests that human beings are always rational.