BEHAVIORAL FINANCE EXAMINATION QUESTIONS AND
CORRECT ANSWER WITH EXPLANATION GRADED A+
STUDY GUIDE SOUTHERN NEW HAMPSHIRE UNIVERSITY
1. Behavioral finance studies:
A. Psychological influences on financial decisions
B. Tax systems only
C. Accounting rules
D. Banking regulations
Answer: A
Rationale: It combines psychology and finance.
2. Traditional finance assumes investors are:
A. Fully rational
B. Emotional only
C. Irrational always
D. Random
Answer: A
Rationale: Standard models assume rational behavior.
3. Behavioral finance assumes investors are:
A. Boundedly rational
B. Perfectly rational
C. Always logical
D. Fully predictable
Answer: A
Rationale: Decisions are influenced by biases.
4. Overconfidence bias refers to:
A. Overestimating one’s knowledge or ability
B. Underestimating returns
C. Ignoring markets
D. Avoiding risk
Answer: A
Rationale: Excess belief in personal judgment.
5. Loss aversion means:
A. Losses hurt more than gains feel good
, B. Gains equal losses
C. No reaction to loss
D. Risk neutrality
Answer: A
Rationale: Psychological pain from losses is stronger.
6. Prospect theory was developed by:
A. Kahneman and Tversky
B. Smith and Keynes
C. Fisher and Marshall
D. Adam Smith only
Answer: A
Rationale: Foundational behavioral finance theory.
7. Prospect theory explains:
A. Decision-making under risk
B. Inflation
C. GDP growth
D. Banking systems
Answer: A
Rationale: How people evaluate gains/losses.
8. Anchoring bias is:
A. Relying heavily on initial information
B. Ignoring all data
C. Random decisions
D. Perfect forecasting
Answer: A
Rationale: First information influences judgment.
9. Herd behavior refers to:
A. Following crowd decisions
B. Independent analysis
C. Random trading
D. Government control
Answer: A
Rationale: Investors mimic others.
10. Mental accounting means:
A. Separating money into categories psychologically
, B. Ignoring money
C. Accounting standards
D. Tax classification
Answer: A
Rationale: People treat money differently based on source.
11. Confirmation bias is:
A. Seeking information that supports beliefs
B. Ignoring all information
C. Perfect analysis
D. Random thinking
Answer: A
Rationale: Selective information processing.
12. Availability bias occurs when:
A. Judging based on recent or vivid information
B. Using full data set
C. Ignoring memory
D. Random selection
Answer: A
Rationale: Easily recalled info dominates decisions.
13. Representativeness bias is:
A. Judging based on stereotypes
B. Using statistics correctly
C. Random choice
D. Rational analysis
Answer: A
Rationale: Overreliance on similarity.
14. Regret aversion means:
A. Avoiding decisions to prevent regret
B. Seeking regret
C. Ignoring outcomes
D. Maximizing risk
Answer: A
Rationale: Fear of future regret affects decisions.
15. Framing effect occurs when:
A. Decisions change based on presentation
CORRECT ANSWER WITH EXPLANATION GRADED A+
STUDY GUIDE SOUTHERN NEW HAMPSHIRE UNIVERSITY
1. Behavioral finance studies:
A. Psychological influences on financial decisions
B. Tax systems only
C. Accounting rules
D. Banking regulations
Answer: A
Rationale: It combines psychology and finance.
2. Traditional finance assumes investors are:
A. Fully rational
B. Emotional only
C. Irrational always
D. Random
Answer: A
Rationale: Standard models assume rational behavior.
3. Behavioral finance assumes investors are:
A. Boundedly rational
B. Perfectly rational
C. Always logical
D. Fully predictable
Answer: A
Rationale: Decisions are influenced by biases.
4. Overconfidence bias refers to:
A. Overestimating one’s knowledge or ability
B. Underestimating returns
C. Ignoring markets
D. Avoiding risk
Answer: A
Rationale: Excess belief in personal judgment.
5. Loss aversion means:
A. Losses hurt more than gains feel good
, B. Gains equal losses
C. No reaction to loss
D. Risk neutrality
Answer: A
Rationale: Psychological pain from losses is stronger.
6. Prospect theory was developed by:
A. Kahneman and Tversky
B. Smith and Keynes
C. Fisher and Marshall
D. Adam Smith only
Answer: A
Rationale: Foundational behavioral finance theory.
7. Prospect theory explains:
A. Decision-making under risk
B. Inflation
C. GDP growth
D. Banking systems
Answer: A
Rationale: How people evaluate gains/losses.
8. Anchoring bias is:
A. Relying heavily on initial information
B. Ignoring all data
C. Random decisions
D. Perfect forecasting
Answer: A
Rationale: First information influences judgment.
9. Herd behavior refers to:
A. Following crowd decisions
B. Independent analysis
C. Random trading
D. Government control
Answer: A
Rationale: Investors mimic others.
10. Mental accounting means:
A. Separating money into categories psychologically
, B. Ignoring money
C. Accounting standards
D. Tax classification
Answer: A
Rationale: People treat money differently based on source.
11. Confirmation bias is:
A. Seeking information that supports beliefs
B. Ignoring all information
C. Perfect analysis
D. Random thinking
Answer: A
Rationale: Selective information processing.
12. Availability bias occurs when:
A. Judging based on recent or vivid information
B. Using full data set
C. Ignoring memory
D. Random selection
Answer: A
Rationale: Easily recalled info dominates decisions.
13. Representativeness bias is:
A. Judging based on stereotypes
B. Using statistics correctly
C. Random choice
D. Rational analysis
Answer: A
Rationale: Overreliance on similarity.
14. Regret aversion means:
A. Avoiding decisions to prevent regret
B. Seeking regret
C. Ignoring outcomes
D. Maximizing risk
Answer: A
Rationale: Fear of future regret affects decisions.
15. Framing effect occurs when:
A. Decisions change based on presentation
