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  1. Is the study of how people perceive, evaluate, and respond to risk.

ANSWER: PSYCHOLOGY OF RISK

  1. It explains why people sometimes makes risky or overly cautious decisions.

ANSWER: PSYCHOLOGY OF RISK

  1. Emotions, experience, and beliefs influence risk-taking behavior.

ANSWER: PSYCHOLOGY OF RISK

  1. Believing we know more than we actually do.

ANSWER: OVERCONFIDENCE BIAS

  1. Judging risk based on recent or memorable events.

ANSWER: AVAILABILITY BIAS

  1. Looking only for information that supports our beliefs.

ANSWER: CONFIRMATION BIAS

  1. Are the basic ideas used to understand how people think, feel, and behave.

ANSWER: PSYCHOLOGY CONCEPTS

  1. Is the uncomfortable feeling a person gets when their thoughts do not match their actions.

ANSWER: COGNITIVE DISSONANCE

  1. It is judging someone or something based on one positive trait and assumes they’re good in others too.

ANSWER: HALO EFFECT

  1. Is the failure to notice something because attention is focus on something else.

ANSWER: INATTENTIONAL BLINDNESS

  1. Is a learning process where behavior is influence by its consequences.

ANSWER: OPERANT CONDITIONING

  1. Is an irrational decision making due to the desire to maintain group harmony instead of logical decision making.

ANSWER: GROUPTHINK

  1. Is the phenomenon where people automatically “catch” and share the emotion of others, such as happiness, excitement, fear, or sadness.

ANSWER: EMOTIONAL CONTAGION

  1. Is when a person believes they cannot improve their situation after experiencing repeated failure.

ANSWER: LEARNED HELPLESSNESS

  1. Are the tendency of people to act or decide in a certain way because their mind and emotions influence there judgment.

ANSWER: BEHAVIORAL BIASES

  1. Are decisions influenced by feelings, emotions, and personal preferences rather than logical analysis.

ANSWER: EMOTIONAL BIASES

  1. Are errors in logic, memory, or information processing.

ANSWER: COGNITIVE BIASES

  1. The tendency to avoid making decisions because of the fear of feeling regret later.

ANSWER: REGRET AVERSION BIAS

  1. The tendency to fear losses more than valuing possible gains.

ANSWER: LOSS AVERSION BIAS

  1. The tendency to prefer things to stay the same because change feels uncomfortable or risky.

ANSWER: STATUS QUO BIAS

  1. The tendency to value something more simply because you own it.

ANSWER: ENDOWMENT BIAS

  1. The difficulty of controlling impulses when making decisions.

ANSWER: SELF-CONTROL BIAS

  1. Decisions are affected by extreme fear or excitement.

ANSWER: FEAR AND GREED BIAS

  1. The tendency to believe that your knowledge, skills, or predictions are better and more accurate than they actually are.

ANSWER: OVERCONFIDENCE BIAS

  1. The tendency to look for and believe information that supports your existing opinions while ignoring information that disagrees with you.

ANSWER: CONFIRMATION BIAS

  1. The tendency to rely too much on the first information received when making decisions.

ANSWER: ANCHORING BIAS

  1. The tendency to judge situations based on information or examples that easily come to mind. Refer

ANSWER: AVAILABILITY BIAS

  1. The tendency to believe that an event was predictable after it already happened.

ANSWER: HINDSIGHT BIAS

  1. The tendency to judge something based on similarities or past experiences instead of complete information.

ANSWER: REPRESENTATIVENESS BIAS

  1. Studies how psychology and human behavior influence financial decisions and market outcomes.

ANSWER: BEHAVIORAL FINANCE

  1. Determines the value and expected return of financial assets.

ANSWER: ASSET PRICING

  1. Focuses on how emotions, beliefs, and psychological biases influence asset prices and returns.

ANSWER: BEHAVIORAL ASSET PRICING

  1. Occurs when investors have excessive confidence in their knowledge, skills or ability to predict market movements.

ANSWER: OVERCONFIDENCE BIAS

  1. Refers to the tendency of investors to feel the negative impact of losses more strongly than the positive impact of equivalent gains.

ANSWER: LOSS AVERSION BIAS

  1. Occurs when investors follow the actions or decisions of other investors instead of making independent judgments.

ANSWER: HERDING BEHAVIOR

  1. Occurs when investors judge an investment based on recent experiences or patterns and assume that these pattern will continue.

ANSWER: REPRESENTATIVENESS BIAS

  1. Occurs when investors rely too heavily on a specific piece of information when making investment decisions.

ANSWER: ANCHORING BIAS

  1. Happens when investors become too emotional and react too strongly to news.

ANSWER: OVERREACTION

  1. Happens when investors react too slowly to important news.

ANSWER: UNDER-REACTION

  1. Are the risks and costs that prevent rational investors from immediately correcting mis-priced assets.

ANSWER: LIMITS TO ARBITRAGE

  1. Stocks that have recently performed well may continue to perform well for a period of time.

ANSWER: MOMENTUM EFFECT

  1. Stocks that have experienced extreme price increases or decreases may later move in the opposite direction.

ANSWER: REVERSAL EFFECT

  1. Assets prices may fluctuate more than can be explained by changes in fundamental information alone.

ANSWER: EXCESSIVE VOLATILITY

  1. Strong investor optimism may push assets prices to extremely high levels, while sudden changes in sentiment may contribute to sharp price declines.

ANSWER: MARKET BUBBLES AND CRASHES

 

ENUMERATION

 

COMMON PSYCHOLOGICAL BIASES:

1.Overconfidence Bias

2.Availability Bias

3.Confirmation Bias

 

RISK IN DAILY LIFE:

1.Investing Money

2.Driving a vehicle

3.Starting a business

4.Choosing a career

5.Making health decisions

 

EXAMPLE OF PSYCHOLOGICAL CONCEPT:

1.Cognitive dissonance

2.Halo Effect

3.Inattentional blindness

4.Operant conditioning

5.Groupthink

6.Emotional contagion

7.Learned helplessness

 

TWO MAIN CATEGORIES OF BEHAVIORAL BIASES:

1.Emotional biases

2.Cognitive biases

 

KINDS OF EMOTIONAL BIASES:

1.Regret aversion bias

2.Loss aversion bias

3.Status quo bias

4.Endowment bias

5.Self-control bias

6.Fear and greed bias

 

KINDS OF COGNITIVE BIAS:

1.Overconfidence bias

2.Confirmation bias

3.Anchoring bias

4.Availability bias

5.Hindsight bias

6.Representativeness bias

 

WAYS TO REDUCE BEHAVIORAL BIASES:

1.Increase self awareness

2.Gather more information

3.Think slowly and carefully

4.Use data and evidence

5.Consider different perspectives

  1. Seek advice from others

 

IMPACT OF BEHAVIORAL BIASES:

1.Poor decision making

2.Finacial losses

3.Missed opportunities

4.Increased risk-taking

5.Poor business performance

 

IMPORTANCE OF PSYCHOLOGICAL CONCEPTS IN BEHAVIORAL BIASES:

1.Helps understand human behavior

2.Helps identify biases

3.Improves decision-making

4.Helps manage emotions

5.Supports better financial decisions

 

FACTORS INFLUENCING INVESTOR BEHAVIOR:

1.Emotions

2.Personal beliefs

3.Cognitive biases

  1. Social influences

5.Investor sentiment

 

PSYCHOLOGICAL FACTORS AFFECTING ASSET PRICING:

1.Overconfidence bias

2.Loss aversion

3.Herding behavior

4.Representativeness bias

5.Anchoring bias

 

 BEHAVIORAL ASSET PRICING ANOMALIES:

1.Momentum effect

2.Reversal effect

3.Excessive volatility

4.Market bubbles and crashes