If the Random Walk Theory Is Correct, a Prudent Investor

question 50

Multiple Choice

If the random walk theory is correct, a prudent investor might choose her stock portfolio by

• A)throwing darts at the newspaper's financial page.
• B)spending money to consult a stock forecaster.
• C)spending time analyzing past stock performance.
• D)not investing in stocks at all, since price behavior is completely erratic.

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Definitions:

Groupthink

In a collective setting, a situation where the inclination towards unity or adaptation prompts decisions that are nonsensical or detrimental.

Immoral Decision

A choice that goes against established moral principles or ethical standards.

Foot-In-The-Door Technique

Asking for a small commitment and, after gaining compliance, asking for a bigger commitment.

Foot-In-The-Door Phenomenon

The foot-in-the-door phenomenon is a psychological tactic where agreeing to a small request increases the likelihood of agreeing to a larger request later.