Here are the questions with the question lines bolded:
What is market psychology primarily concerned with? A) The physical aspects of market transactions
B) The behavior and emotions of investors and traders
C) The technical analysis of stocks
D) The historical performance of markets
Answer: B) The behavior and emotions of investors and traders
What term describes the tendency of investors to follow the crowd rather than their own analysis? A) Herd behavior
B) Market efficiency
C) Risk aversion
D) Arbitrage
Answer: A) Herd behavior
Which psychological bias involves overestimating one’s own ability to predict market movements? A) Confirmation bias
B) Overconfidence bias
C) Anchoring bias
D) Loss aversion
Answer: B) Overconfidence bias
What is the term for when investors ignore new information that contradicts their current beliefs? A) Loss aversion
B) Confirmation bias
C) Herd behavior
D) Anchoring bias
Answer: B) Confirmation bias
Which of the following describes the tendency to avoid losses rather than acquiring equivalent gains? A) Prospect theory
B) Overconfidence
C) Herd behavior
D) Anchoring
Answer: A) Prospect theory
What is ‘recency bias’? A) The tendency to value recent information more highly than older information
B) The tendency to cling to old beliefs despite new evidence
C) The tendency to overestimate future returns based on past performance
D) The tendency to avoid investment based on past losses
Answer: A) The tendency to value recent information more highly than older information
Which psychological phenomenon refers to investors selling assets that have increased in value but holding onto assets that have decreased in value? A) Loss aversion
B) Disposition effect
C) Overconfidence
D) Herd behavior
Answer: B) Disposition effect
What is ‘fear of missing out’ (FOMO) in the context of market psychology? A) The fear of losing money in investments
B) The desire to avoid investing in high-risk assets
C) The anxiety of not participating in a market trend or investment opportunity
D) The reluctance to sell assets that have increased in value
Answer: C) The anxiety of not participating in a market trend or investment opportunity
Which cognitive bias involves relying too heavily on the first piece of information encountered when making decisions? A) Anchoring bias
B) Overconfidence bias
C) Recency bias
D) Herd behavior
Answer: A) Anchoring bias
What is the term for the psychological phenomenon where people believe that they have control over outcomes that are actually random? A) Gambler’s fallacy
B) Overconfidence
C) Anchoring
D) Recency bias
Answer: A) Gambler’s fallacy
Which bias leads investors to seek out information that supports their preexisting views? A) Confirmation bias
B) Anchoring bias
C) Loss aversion
D) Overconfidence bias
Answer: A) Confirmation bias
What is ‘market sentiment’? A) The collective attitude or mood of investors towards the market
B) The overall economic performance of a country
C) The technical indicators used in trading
D) The historical volatility of a stock
Answer: A) The collective attitude or mood of investors towards the market
Which of the following describes the phenomenon where investors tend to remember and focus more on negative experiences than positive ones? A) Loss aversion
B) Overconfidence bias
C) Recency bias
D) Herd behavior
Answer: A) Loss aversion
What is ‘anchoring’ in the context of investing? A) Relying on the first piece of information encountered when making decisions
B) Following the crowd in investment decisions
C) The tendency to hold onto assets that are losing value
D) The practice of diversifying investments
Answer: A) Relying on the first piece of information encountered when making decisions
Which bias involves investors becoming overly optimistic after experiencing a series of wins? A) Overconfidence bias
B) Loss aversion
C) Recency bias
D) Anchoring bias
Answer: A) Overconfidence bias
What term describes the behavior of investors who react more strongly to losses than to equivalent gains? A) Loss aversion
B) Disposition effect
C) Herd behavior
D) Confirmation bias
Answer: A) Loss aversion
Which term describes the phenomenon where investors believe that they can predict market movements based on patterns or trends that are actually random? A) Pattern recognition
B) Gambler’s fallacy
C) Overconfidence
D) Anchoring
Answer: B) Gambler’s fallacy
What is the term for the cognitive bias where investors remember past gains more positively and past losses more negatively? A) Sunk cost fallacy
B) Recency bias
C) Loss aversion
D) Hindsight bias
Answer: D) Hindsight bias
How can ‘herd behavior’ negatively impact markets? A) By stabilizing market prices
B) By causing market bubbles and crashes
C) By reducing market volatility
D) By improving market efficiency
Answer: B) By causing market bubbles and crashes
What is the term for when investors hold onto losing investments in the hope that they will rebound, while selling winning investments to lock in profits? A) Disposition effect
B) Loss aversion
C) Herd behavior
D) Overconfidence bias
Answer: A) Disposition effect
Which term refers to the tendency of investors to attribute their successes to their own skill and their failures to external factors? A) Self-serving bias
B) Confirmation bias
C) Anchoring
D) Loss aversion
Answer: A) Self-serving bias
What does ‘cognitive dissonance’ refer to in market psychology? A) The discomfort of holding conflicting beliefs or attitudes
B) The tendency to follow the crowd
C) The habit of anchoring to initial information
D) The tendency to overestimate future returns
Answer: A) The discomfort of holding conflicting beliefs or attitudes
Which psychological effect can lead investors to believe they are less affected by market downturns than they actually are? A) Overconfidence bias
B) Loss aversion
C) Recency bias
D) Herd behavior
Answer: A) Overconfidence bias
How does ‘availability bias’ affect investment decisions? A) By causing investors to base decisions on recent or easily recalled information
B) By making investors rely on historical data
C) By causing investors to avoid risky investments
D) By encouraging long-term investing
Answer: A) By causing investors to base decisions on recent or easily recalled information
What is the ‘bandwagon effect’ in market psychology? A) The tendency to avoid investments that are popular
B) The tendency to invest in something simply because others are doing so
C) The effect of diversification on investment risk
D) The effect of interest rates on investment decisions
Answer: B) The tendency to invest in something simply because others are doing so
What can ‘framing effect’ lead investors to do? A) Make decisions based on how information is presented rather than its actual content
B) Rely on past performance to predict future returns
C) Focus solely on long-term investment outcomes
D) Avoid investments with high volatility
Answer: A) Make decisions based on how information is presented rather than its actual content
What psychological bias might cause investors to hold onto losing investments longer than they should? A) Loss aversion
B) Overconfidence bias
C) Herd behavior
D) Anchoring bias
Answer: A) Loss aversion
What term describes the tendency to attribute market success to skill and failure to bad luck? A) Self-serving bias
B) Gambler’s fallacy
C) Anchoring bias
D) Recency bias
Answer: A) Self-serving bias
What effect can overconfidence have on trading behavior? A) It can lead to excessive trading and higher transaction costs
B) It can result in fewer trades and lower costs
C) It can cause investors to make more conservative choices
D) It can decrease market volatility
Answer: A) It can lead to excessive trading and higher transaction costs
Which bias involves investors making decisions based on how an event is framed, rather than the objective reality? A) Framing effect
B) Confirmation bias
C) Anchoring bias
D) Recency bias
Answer: A) Framing effect
What is ‘status quo bias’? A) The tendency to prefer things to stay the same rather than change
B) The tendency to follow the market trends
C) The tendency to make decisions based on recent information
D) The tendency to invest in popular assets
Answer: A) The tendency to prefer things to stay the same rather than change
How might ‘regret aversion’ affect investment decisions? A) By causing investors to avoid making decisions to prevent potential regret
B) By encouraging investors to take more risks
C) By leading investors to follow market trends
D) By increasing the likelihood of successful trades
Answer: A) By causing investors to avoid making decisions to prevent potential regret
What psychological effect might make an investor reluctant to sell a losing investment? A) Loss aversion
B) Overconfidence bias
C) Recency bias
D) Anchoring bias
Answer: A) Loss aversion
What is ‘self-fulfilling prophecy’ in the context of market psychology? A) When investors’ actions based on their expectations cause those expectations to come true
B) When historical data accurately predicts future market performance
C) When investors follow the advice of experts
D) When market predictions are confirmed by objective data
Answer: A) When investors’ actions based on their expectations cause those expectations to come true
Which bias involves investors sticking with their initial investment decision despite new, contradicting information? A) Anchoring bias
B) Confirmation bias
C) Loss aversion
D) Recency bias
Answer: A) Anchoring bias
What psychological factor can lead to ‘chasing losses’ behavior in investing? A) Loss aversion
B) Overconfidence bias
C) Herd behavior
D) Recency bias
Answer: A) Loss aversion
What is ‘illusion of control’? A) Believing that one can control or influence outcomes that are actually random
B) Relying on historical performance for future predictions
C) Making decisions based on past gains and losses
D) Avoiding investments based on past failures
Answer: A) Believing that one can control or influence outcomes that are actually random
How can ‘self-attribution bias’ impact investment decisions? A) Investors attribute their successes to their own skill and their failures to external factors
B) Investors attribute market movements to external factors
C) Investors ignore their past decisions in favor of new strategies
D) Investors follow market trends without regard for their own skills
Answer: A) Investors attribute their successes to their own skill and their failures to external factors
What is the effect of ‘herding behavior’ on market prices? A) It can lead to market bubbles and crashes
B) It stabilizes market prices
C) It results in more accurate market predictions
D) It reduces market volatility
Answer: A) It can lead to market bubbles and crashes
What does ‘sunk cost fallacy’ refer to in investment decisions? A) Continuing to invest in a losing asset due to the amount already invested
B) Investing based on recent gains
C) Making decisions based on new information
D) Avoiding investments due to past failures
Answer: A) Continuing to invest in a losing asset due to the amount already invested
Which term refers to the tendency for investors to believe that past patterns will continue into the future? A) Pattern recognition
B) Gambler’s fallacy
C) Overconfidence bias
D) Anchoring
Answer: A) Pattern recognition
What effect can ’emotional attachment’ have on investment decisions? A) It can lead to holding onto investments longer than rational analysis would suggest
B) It can increase market efficiency
C) It can reduce the impact of market fluctuations
D) It can stabilize investment returns
Answer: A) It can lead to holding onto investments longer than rational analysis would suggest
What does ‘optimism bias’ cause investors to do? A) Overestimate the likelihood of positive outcomes
B) Overestimate the likelihood of negative outcomes
C) Underestimate the likelihood of both positive and negative outcomes
D) Make decisions based on historical performance only
Answer: A) Overestimate the likelihood of positive outcomes
Which bias might lead an investor to excessively trade after experiencing a series of gains? A) Overconfidence bias
B) Loss aversion
C) Recency bias
D) Herd behavior
Answer: A) Overconfidence bias
How can ‘cognitive dissonance’ affect an investor’s decision-making process? A) By causing discomfort when holding conflicting beliefs, leading to biased decision-making
B) By increasing the accuracy of investment predictions
C) By making investors more open to changing their investment strategies
D) By stabilizing market reactions to new information
Answer: A) By causing discomfort when holding conflicting beliefs, leading to biased decision-making
What is ‘investment myopia’? A) The tendency to focus only on short-term gains while ignoring long-term risks
B) The tendency to focus on long-term investments and ignore short-term opportunities
C) The habit of investing in only one type of asset
D) The practice of investing based on past performance
Answer: A) The tendency to focus only on short-term gains while ignoring long-term risks
Which bias involves investors overestimating the importance of their own knowledge or expertise? A) Overconfidence bias
B) Confirmation bias
C) Anchoring bias
D) Loss aversion
Answer: A) Overconfidence bias
What does ‘anchoring’ in investment contexts often lead to? A) Relying on outdated or irrelevant information when making decisions
B) Making decisions based on the latest market trends
C) Diversifying investments to reduce risk
D) Following expert advice and analysis
Answer: A) Relying on outdated or irrelevant information when making decisions
Which cognitive bias might cause investors to underestimate the impact of random events on market movements? A) Gambler’s fallacy
B) Overconfidence bias
C) Anchoring bias
D) Recency bias
Answer: A) Gambler’s fallacy
What effect can ‘recency bias’ have on an investor’s trading decisions? A) It can cause investors to give undue weight to recent events and trends
B) It can lead to more rational investment decisions
C) It can decrease the likelihood of making emotional decisions
D) It can stabilize market movements
Answer: A) It can cause investors to give undue weight to recent events and trends