Which Statement Best Reflects an Example of Regression Toward the Mean

question 152

Multiple Choice

Which statement best reflects an example of regression toward the mean

• A) People who originally score near the average on some trait are measured a second time, and their new score falls at the extreme high or low end of the scale. 
• B) People who originally score extremely high or low on some trait are measured a second time, and their new score falls closer to the average. 
• C) People recover from a mental or physical illness without any form of intervention. 
• D) People's expectations lead them to experience some change, even though they receive a fake or ineffective treatment.

---

Definitions:

Market Return

The total return on investment, including dividends and capital gains, from holding a market portfolio.

Nondiversifiable Risk

A type of risk that affects all investments across the market and cannot be eliminated through diversification.

Diversifiable Risk

A type of investment risk that can be reduced or eliminated in a portfolio through diversification, as it is not correlated with market movements.

Risk Premium

The extra return expected by an investor for holding a risky asset, over and above the risk-free rate.