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An investor has owned a stock for several years and is very fond of it. But the stock is now well below what they paid for it. They may have a tendency not to sell because of which three factors? Anchoring, risk aversion, and the disposition effect Anchoring, conservative bias, and risk aversion Endowment effect, herding, and anchoring Conservative bias, loss aversion, and the endowment effect Following the suggestions of an investment advisor may be considered a form of Belief Perseverance Affect heuristic Herding Familiarity An investor might be exhibiting loss aversion by adding to an existing financial position (i.e. buying more of a certain security) when The existing position has an unrealized loss The existing position has an unrealized gain He/she has lots of money and the position is inconsequential to their wealth The investor intends to hold the position for a long time An investor might be exhibiting loss aversion by adding to an existing financial position (i.e. buying more of a certain security) when The existing position has an unrealized loss The existing position has an unrealized gain He/she has lots of money and the position is inconsequential to their wealth The investor intends to hold the position for a long time Trading frequently on the belief that one has information or insight that most others do not is Herding Gambler's fallacy Quasi-magical thinking Overconfidence Andrei Schleifer, author of Inefficient Markets stated that "Investors hardly pursue the passive strategies expected of uninformed market participants by the Efficient Markets Theory". Schleifer then wrote that people deviate from standard decision- making in three ways. These three ways are People do not assess risk in cold, logical fashion; People are not able to properly assess the probabilities of uncertain outcomes; People make choices depending on how information is presented to them People are generally risk averse; People make choices depending on how information is presented to them; People tend to act irrationally when not properly educated on financial matters People are generally risk seekers; People are not able to properly assess the probabilities of uncertain outcomes; People are not generally conscious of why they make most financial decisions. People are not able to properly assess the probabilities of uncertain outcomes: People tend to make most financial decisions from the more emotional and primitive parts of the brain; People tend to invest only in things they are familiar with Our brains can often fool us into making decisions for reasons we are not even aware of. Such instances are called Randomness illusions Cognitive illusions Quasi-magical illusions Optical illusions The two psychologists are most often credited with launching the Behavioral Finance movement in the 1980s are Shiller and Fama Kahneman and Thaler Shiller and Shleifer Kahneman and Tversky Which of the following statements is untrue? People tend to underweight extremely small probabilities (interpreting them to be essentially zero) People tend to underweight outcomes that are merely probable versus those that are more certain People tend to overweight the probability of success being due to skill versus chance People tend to underestimate their own abilities Behaviorists argue that financial markets are not as efficient as the EMH contends, citing The fact that people could not possibly calculate all the things in their heads that the EMH assumes they do before making decisions Anomalies in market action that should not occur in an efficient market All of the these Studies that show biases to be both pervasive and systematic
