The Study of the Cognitive Processes and Biases Associated with Making

question 70

Multiple Choice

The study of the cognitive processes and biases associated with making financial and economic decisions is known as

• A) asset pricing model.
• B) behavioral finance.
• C) efficient market hypothesis.
• D) stock market bubble.

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Definitions:

Unsystematic Risk

The risk of price change due to the unique circumstances of a specific security, as opposed to the overall market.

Security Market Line

A representation in financial market theory plotting the expected return of an asset or a portfolio against its risk (beta), under the Capital Asset Pricing Model.

Diversified Investors

Individuals or entities that spread their investments across various asset classes and sectors to minimize risk.

Risk-Return Tradeoff

The principle that potential return rises with an increase in risk; low levels of uncertainty (risk) are associated with low potential returns, whereas high levels of uncertainty (risk) are associated with high potential returns.