This quiz works best with JavaScript enabled. Home > Finance > Finance Theory > Behavioral Finance > Behavioral Finance – Quiz 1 🏠 Homepage 📘 Download PDF Books 📕 Premium PDF Books Behavioral Finance Quiz 1 (30 MCQs) Quiz Instructions Select an option to see the correct answer instantly. 1. Who created prospect theory? A) Barberis and Thaler. B) Shleifer. C) Kahneman and Tversky. D) Schiller. Show Answer Correct Answer: C) Kahneman and Tversky. 2. One important implication of the efficient market hypothesis is that: A) Investors can make profits by engaging in day trading. B) Investors should hold a diversified portfolio and avoid active trading. C) Investors should actively review their portfolio to achieve the highest profits. D) All of the above. Show Answer Correct Answer: B) Investors should hold a diversified portfolio and avoid active trading. 3. Behavioral finance A) Is as a subject that brings together economic insights about preferences and decision-making with broader principles of behaviour from a range of other social, behavioural and biological sciences. B) The influence of psychology on the behaviour of financial practitioners and the subsequent effect on markets. Show Answer Correct Answer: B) The influence of psychology on the behaviour of financial practitioners and the subsequent effect on markets. 4. A seller includes an option on a menu solely to make the most expensive option look more appealing by comparison. This seller is taking advantage of ..... A) The sunk cost fallacy. B) Loss aversion. C) The decoy effect. D) Left digit bias. E) Social norms. Show Answer Correct Answer: C) The decoy effect. 5. Firm A wants to spin off its wholly owned subsidiary B. Stockholders of A will receive 1.5 shares of B per share of A. After the IPO of B we observe the following prices:A:$ 80 and B:$ 70What is the correct "stub value" ? A) -50. B) -25. C) 50. D) 10. Show Answer Correct Answer: B) -25. 6. Evaluation biases affect the [ ..... ] of a decision problem. A) Input. B) Valuation method. C) Judged probabilities. D) None of above. Show Answer Correct Answer: B) Valuation method. 7. Making decisions based on arbitrary (i.e. random) reference points is called ..... A) Left digit bias. B) Asymmetric dominance. C) Anchoring. D) The endowment effect. E) Arbitration. Show Answer Correct Answer: C) Anchoring. 8. Which of the following statements best defines Use Value? A) How well something satisfies a person's wants or needs. B) What you can obtain for an item at a later time. C) How helpful an item is given the context of a current situation. D) What we lose by giving up the other provided choice. Show Answer Correct Answer: C) How helpful an item is given the context of a current situation. 9. Positive serial correlation in returns is reported over the medium term. This is called ..... A) Anchoring. B) Reversal. C) Momentum. D) Representativeness. Show Answer Correct Answer: C) Momentum. 10. If investors initially anchor on past earnings, they ..... to earnings news. Later, if they believe the observed high (or low) earnings will continue into the future, they ..... A) Overreact, underreact. B) Underreact, underreact again. C) Overreact, overreact again. D) Underreact, overreact. Show Answer Correct Answer: D) Underreact, overreact. 11. What is a Plain Folks advertisement? A) A public figure or celebrity promoting a product. B) Having people like you speaking on behalf of a product. C) Making huge predictions based on a few small facts. D) Use of virtue words/opposite of name calling. Show Answer Correct Answer: B) Having people like you speaking on behalf of a product. 12. What is the belief that a small sample of outcomes accurately represents the long-run distribution of outcomes? A) Law of small numbers. B) Survivorship bias. C) False consensus. D) Anchoring and adjustment. Show Answer Correct Answer: A) Law of small numbers. 13. The ability to affect someone else's behavior A) Credit. B) Financial literacy. C) Opportunity cost. D) Influence. Show Answer Correct Answer: D) Influence. 14. The M in SMART goals stands for A) Might. B) Meaningful. C) Measurable. D) Magical. Show Answer Correct Answer: C) Measurable. 15. Preferring one gender over another or assuming that one gender is better A) Weight Bias. B) Gender Bias. Show Answer Correct Answer: B) Gender Bias. 16. Using graphs, charts or statistics that sound precise-yet even experts find the numbers suspect: A) Plain Folks. B) Bandwagon. C) False Statistics. D) Freemium. Show Answer Correct Answer: C) False Statistics. 17. (In short) what is described by the "Information Paradox" of Grossmann and Stiglitz (1980)? A) If all information is reflected in prices, nobody had an interest in producing information. B) If all information is reflected in prices, nobody would use technical analysis. C) If all information is reflected in prices, nobody would trade. D) None of above. Show Answer Correct Answer: A) If all information is reflected in prices, nobody had an interest in producing information. 18. What is loss aversion and how is it likely to be costly? A) The belief that other people are thinking the same thing you are thinking. B) The tendency to focus on avoiding short-term losses, even at the expense of long-term gains. C) The tendency to avoid making a decision because of fear of suboptimal outcomes. D) The reliance on stereotypes or limited samples to form opinions. Show Answer Correct Answer: C) The tendency to avoid making a decision because of fear of suboptimal outcomes. 19. In class you learned about mispricings resulting from spin-offs. Which possible reason(s) can explain this phenomenon? A) Taxation. B) Liquidity. C) Noise Trader Risk. D) Currency Risk. Show Answer Correct Answer: C) Noise Trader Risk. 20. What is the phenomenon where investors tend to sell winning stocks too early and hold onto losing stocks for too long? A) Disposition effect. B) Confirmation bias. C) Recency bias. D) Anchoring and adjustment. Show Answer Correct Answer: A) Disposition effect. 21. According to Dave Ramsey, how much of your success with reaching your financial goals is related to controlling your behavior A) 20%. B) 40%. C) 80%. D) 60%. Show Answer Correct Answer: C) 80%. 22. What is the purpose of Nostalgia in ads? A) A brief story or tale told by a character in literature. B) A person or thing that makes the future look better than the present. C) A sentence that withholds its main idea until the end. D) Desire to return in thought or fact to a former time. Show Answer Correct Answer: D) Desire to return in thought or fact to a former time. 23. If I choose to spend $ 15 at Starbucks, I give up the option of spending that same $ 15 on gas for my car. This concept is referred to as: A) Regret. B) Opportunity cost. C) Neuroeconomics. D) Decision tree matrix. Show Answer Correct Answer: B) Opportunity cost. 24. Which of the following statements best defines Opportunity Cost? A) What we lose by giving up the other provided choice. B) How helpful an item is given the context of a current situation. C) How well something satisfies a person's wants or needs. D) What you can obtain for an item at a later time. Show Answer Correct Answer: A) What we lose by giving up the other provided choice. 25. When my best friend buys new shoes that I think are "cool", I may begin to want the shoes as well, even if I like my current shoes and they meet my needs. Why? A) The desire to "fit in" socially is hard-wired in our brain. B) I deserve to have things that are at least as nice as what my friend has. C) My present self is committed to delaying gratification. D) My friend is considered an "influencer" for me in terms of neuroeconomics. Show Answer Correct Answer: A) The desire to "fit in" socially is hard-wired in our brain. 26. Review! You'll fill this out when you begin a new job A) 1099. B) W2. C) W4. D) 1040. Show Answer Correct Answer: C) W4. 27. Mental Accounting refers to the willingness of people to spend their money based on subjective evaluation, that may lead to irrational decision. A) False. B) True. Show Answer Correct Answer: B) True. 28. Why are non-celebrities able to influence buying behavior? A) They have third party credibility. B) They are more relatable, causing us to trust them. C) They are paid to advertise. D) They use the celebrity/eye candy appeal. Show Answer Correct Answer: B) They are more relatable, causing us to trust them. 29. What is the tendency to overestimate the importance of recent events and underestimate the likelihood of long-term trends? A) Clustering illusion. B) Recency bias. C) Confirmation bias. D) Availability bias. Show Answer Correct Answer: B) Recency bias. 30. The tendency to put someone on a pedestal or think more highly of them afterlearning something impressive about them A) The Contrast Effect-. B) The Halo/Horns Effect. Show Answer Correct Answer: B) The Halo/Horns Effect. Next →Related QuizzesFinance Theory QuizzesFinance QuizzesBehavioral Finance Quiz 2Behavioral Finance Quiz 3Behavioral Finance Quiz 4Behavioral Finance Quiz 5Behavioral Finance Quiz 6Behavioral Finance Quiz 7 🏠 Back to Homepage 📘 Download PDF Books 📕 Premium PDF Books