Vinita Buys a Stock Assuming That She Can Make Profit

question 35

Multiple Choice

 Vinita buys a stock assuming that she can make profit out of it. However, shortly thereafter the stock value drops and she loses money. Her financial planner thinks the stock value will drop further and advises her to sell the stock. However, the market value has dropped so much already that Vinita believes it is due to rebound; she doesn't want to sell at the lowest point and lose money. She holds onto the stock in hopes to regain her loss. Instead she loses more money. This phenomena is referred to as

• A) intuitive decision making.
• B) representativeness heuristic.
• C) escalation of commitment.
• D) rational decision making.

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Definitions:

Pounds

The unit of currency used in the United Kingdom, also known as the British pound sterling (GBP).

Marking-to-Market

An accounting practice where assets and liabilities are valued according to current market prices, rather than book or historical prices.

Troy Ounce

A unit of measure used for precious metals, slightly heavier than an avoirdupois ounce, equal to approximately 31.1035 grams.

Silver Contract

A legally binding agreement for the purchase or sale of silver in the future at an agreed-upon price.