The Best Stock to Own When the Stock Market Is

question 109

Multiple Choice

The best stock to own when the stock market is at a peak and is expected to decline in value is one with a beta of

• A) +1.5.
• B) +1.0.
• C) -1.0.
• D) -0.5.

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Definitions:

Rational Framework

A systematic approach based on reason and logic, often used in decision-making processes to ensure outcomes are logically derived.

Decision Making

The cognitive process of selecting a course of action among various alternatives, often involving a balance of risk and reward.

Neoclassical Economics

The dominant and conventional branch of economic theory that attempts to predict human behavior by building economic models based on simplifying assumptions about people’s motives and capabilities. These include that people are fundamentally rational; motivated almost entirely by self-interest; good at math; and unaffected by heuristics, time inconsistency, and self-control problems.

Behavioral Economics

The branch of economic theory that combines insights from economics, psychology, and biology to make more accurate predictions about human behavior than conventional neoclassical economics, which is hampered by its core assumptions that people are fundamentally rational and almost entirely self-interested. Behavioral economics can explain framing effects, anchoring, mental accounting, the endowment effect, status quo bias, time inconsistency, and loss aversion.