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Questions and Answers
What is one potential cause of anchoring in finance?
What is one potential cause of anchoring in finance?
- A high level of diversification in investments
- A decrease in market volatility
- An emotional relationship with our entry price (correct)
- A financial model predicting future losses
Which statement describes a cause of anchoring related to decision-making?
Which statement describes a cause of anchoring related to decision-making?
- Adjusting portfolios based on interest rate changes
- A price target set to a number that feels appealing (correct)
- Relying on historical trends for future predictions
- Choosing stocks based on peer recommendations
Which of the following is NOT a recognized cause of anchoring in finance?
Which of the following is NOT a recognized cause of anchoring in finance?
- Ships staying close to the shore
- Setting appealing price targets
- An emotional attachment to investment outcomes
- A strong preference for long-term investments (correct)
What emotional factor affects investors and leads to anchoring?
What emotional factor affects investors and leads to anchoring?
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Which of these is considered a cause of anchoring in finance?
Which of these is considered a cause of anchoring in finance?
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Study Notes
Causes of Anchoring in Finance
- Anchoring is a cognitive bias where individuals rely too heavily on the first piece of information they receive (the "anchor") when making decisions.
- In finance, anchoring can be influenced by an emotional relationship with an initial purchase price.
- Setting a price target based on personal preference or appeal can also lead to anchoring.
- The example of a ship staying close to shore is not directly relevant to anchoring in finance.
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