A $100 Coat Marked Down from $150 Can Seem Like

question 212

Multiple Choice

A $100 coat marked down from $150 can seem like a better deal than the same coat priced regularly at $100.This best illustrates the importance of

• A) belief perseverance.
• B) confirmation bias.
• C) framing.
• D) the availability heuristic.

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Definitions:

Fairly Priced Securities

Securities that are priced accurately based on their inherent risk and expected return.

Alphas

The excess returns of an investment relative to the return of a benchmark index, indicating the added value by the portfolio manager.

Betas

A measure of a stock's volatility relative to the overall market; a reflection of its risk compared to the market.

Arbitrage Opportunity

A situation where a trader can make a profit without risk by simultaneously buying and selling the same or equivalent assets in different markets to exploit price differences.