Peter Is a Medical Student and Does Not Have a Background

question 16

Multiple Choice

Peter is a medical student and does not have a background in finance. He reads an article in a financial journal that the Internal Rate of Return (IRR) of a stock portfolio is 3%. What type of challenge does this number present?

• A) direction of "good"
• B) unit of analysis
• C) scale of data
• D) type of stock

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Definitions:

Overconfidence Effect

A cognitive bias where an individual's subjective confidence in their judgments is greater than their objective accuracy.

Confirmation Bias

The tendency to search for, interpret, favor, and recall information in a way that confirms one's preexisting beliefs or hypotheses.

Cognitive Biases

Cognitive biases are systematic patterns of deviation from norm or rationality in judgment, often leading to illogical interpretation or decision-making.

Behavioral Economics

A field of economics that examines how psychological, cognitive, emotional, cultural, and social factors affect the economic decisions of individuals and institutions and how those decisions vary from those implied by classical theory.