While Violating the Sunk Cost Principle, People Often

question 26

Multiple Choice

While violating the sunk cost principle, people often

• A) attribute random fluctuations in the stock market to predictable causes, thereby increasing the likelihood that self-fulfilling prophecies will occur.
• B) feel entrapped by their prior commitments to some failing course of action but continue to pursue it to justify their prior decisions.
• C) wait too long before making their investment decisions, thereby passing up the opportunity to buy stocks when they are least expensive.
• D) base their decisions purely on economic rules and ignore the psychological implications of their actions.

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Definitions:

Net Cash Flows

The amount of cash that is generated or lost over a specific period, considering all cash inflows and outflows from operations, financing, and investing activities.

Year-End

The conclusion of a fiscal year when a company completes its accounting period, often used to finalize financial reports and assess annual performance.

Present Value

The present worth of a future amount of money or series of cash inflows, calculated using a given rate of return.