The Premise of Behavioral Finance Is That

question 41

Multiple Choice

The premise of behavioral finance is that

• A)conventional financial theory ignores how real people make decisions and that people make a difference.
• B)conventional financial theory considers how emotional people make decisions, but the market is driven by rational utility-maximizing investors.
• C)conventional financial theory should ignore how the average person makes decisions because the market is driven by investors who are much more sophisticated than the average person.
• D)conventional financial theory considers how emotional people make decisions, but the market is driven by rational utility-maximizing investors and should ignore how the average person makes decisions because the market is driven by investors who are much more sophisticated than the average person.

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Definitions:

Stereotype

A widely held but fixed and oversimplified image or idea of a particular type of person or thing, often based on limited information.

Spotlight Effect

The belief that others are paying more attention to one's appearance and behavior than they really are.

Conform

The act of adjusting one's behavior or thinking to align with the standards, norms, or expectations of a group or society.

Highly Extraverted

Describing individuals who are very outgoing, sociable, and active, often seeking stimulation and engagement in social settings.