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.

Comprehend the key aspects of portfolio theory, including diversification, beta, and the efficient frontier.

Grasp the fundamentals and implications of the Capital Asset Pricing Model (CAPM).

Understand the Arbitrage Pricing Theory (APT) and its differences from the CAPM.

Identify and explain the measures of risk including variance, beta, and alpha.

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Definitions:

Biological Psychologist

A scientist who focuses on understanding how biological processes influence the mind and behavior, often exploring areas such as neuroscience, genetics, and physiology.

Chemical Changes

Transformations in matter that result in the formation of new chemical substances, involving a change in chemical composition.

Emotional Disorders

A category of mental health disorders primarily characterized by significant disturbances in a person’s emotional state, affecting their everyday life.

Action Potentials

Electrical impulses that enable the transmission of information along the neurons.