CWS Behavioral Finance

Question 1

Which behavioral bias causes investors to hold losing investments too long while selling winning investments too quickly?

Accepted Answer

Disposition effect

Answer

Anchoring bias

Answer

Herding behavior

Answer

Overconfidence bias

Question 2

A wealth strategist notices a client believes their investment portfolio will outperform the market simply because they selected the stocks themselves. This best illustrates:

Accepted Answer

Overconfidence bias

Answer

Loss aversion

Answer

Mental accounting

Answer

Recency bias

Question 3

Mental accounting, as described by Richard Thaler, refers to:

Accepted Answer

The tendency to assign different values to money based on its source or intended use

Answer

Tracking all expenses in a dedicated financial software

Answer

Calculating net worth across all accounts simultaneously

Answer

Separating investment accounts from spending accounts for tax purposes

Question 4

Which concept, central to prospect theory, explains why investors feel the pain of a $10,000 loss more intensely than the pleasure of a $10,000 gain?

Accepted Answer

Loss aversion

Answer

Risk tolerance asymmetry

Answer

Regret avoidance

Answer

Status quo bias

Question 5

A client refuses to change their investment allocation because it is the same allocation they have had for years, despite changing market conditions. This behavior is most consistent with:

Accepted Answer

Status quo bias

Answer

Anchoring bias

Answer

Herding behavior

Answer

Framing effect

Question 6

When a client makes investment decisions based heavily on recent market performance, assuming it will continue, this is known as:

Accepted Answer

Recency bias

Answer

Representativeness heuristic

Answer

Anchoring bias

Answer

Confirmation bias

Question 7

Which of the following best describes 'anchoring' in the context of behavioral finance?

Accepted Answer

Over-relying on the first piece of information encountered when making decisions

Answer

Tying investment returns to a fixed benchmark

Answer

Maintaining a conservative allocation to anchor portfolio volatility

Answer

Using historical averages as the baseline for all projections