Behavioral Finance & Trading Psychology:
2026 Guide
Cognitive Biases, Risk Perception & Decision Making (100 Questions)
1. What is the core premise of Behavioral Finance?
A) Investors always act rationally to maximize utility
B) Market participants are influenced by psychological biases and cognitive errors
C) Markets are perfectly efficient at all times
D) Trading is purely mathematical
Correct Answer: B) Market participants are influenced by psychological biases and
cognitive errors
2. "Loss Aversion" describes the tendency for investors to:
A) Prefer to lose money slowly
B) Feel the pain of a loss twice as intensely as the pleasure of an equivalent gain
C) Avoid buying stocks that have high dividends
D) Only invest in companies that are losing money
Correct Answer: B) Feel the pain of a loss twice as intensely as the pleasure of an
equivalent gain
3. "Confirmation Bias" in trading is:
A) Seeking out information that supports your existing belief while ignoring contradictory
evidence
B) Asking a friend to confirm your stock choice
C) Making a trade after checking the official financial reports
D) Waiting for the market to open before trading
Correct Answer: A) Seeking out information that supports your existing belief while
ignoring contradictory evidence
4. "Overconfidence Bias" often leads traders to:
A) Trade less frequently
B) Trade too frequently and underestimate the risks of the market
C) Rely only on AI robots for advice
D) Always follow the advice of professionals
Correct Answer: B) Trade too frequently and underestimate the risks of the market
5. What is the "Disposition Effect"?
,A) Selling winners too early and holding onto losers for too long
B) Selling all assets as soon as the market opens
C) Buying only stocks that are falling
D) Disposing of your portfolio every month
Correct Answer: A) Selling winners too early and holding onto losers for too long
6. "Herding Behavior" occurs when:
A) A trader acts alone in their office
B) Investors follow the actions of a larger group, regardless of their own analysis
C) Investors buy stocks that have been ignored by everyone
D) A company sells its products to other companies
Correct Answer: B) Investors follow the actions of a larger group, regardless of their own
analysis
7. What is "Anchoring Bias"?
A) Relying too heavily on the first piece of information encountered (the "anchor") when making
decisions
B) Being afraid of the market dropping
C) Investing only in boat companies
D) Using the same password for all trading accounts
Correct Answer: A) Relying too heavily on the first piece of information encountered (the
"anchor") when making decisions
8. "Recency Bias" is the tendency to:
A) Predict the future based on the last 100 years
B) Overweight the importance of recent events and assume they will continue in the future
C) Buy stocks that haven't moved in a month
D) Forget everything that happened yesterday
Correct Answer: B) Overweight the importance of recent events and assume they will
continue in the future
9. What is "Framing Effect"?
A) Putting a stock price in a picture frame
B) Reacting differently to information depending on how it is presented (e.g., "90% success rate"
vs. "10% failure rate")
C) Building a new house
D) Trading stocks from a specific frame of time
Correct Answer: B) Reacting differently to information depending on how it is presented
, 10. "Mental Accounting" refers to:
A) Counting money in your head
B) The tendency to treat money differently depending on its source or intended use
C) Being afraid of calculators
D) Creating a separate bank account for every stock
Correct Answer: B) The tendency to treat money differently depending on its source or
intended use
11. "Sunk Cost Fallacy" leads traders to:
A) Invest more in a losing trade because they have already spent money on it
B) Sell a losing trade immediately
C) Stop trading entirely
D) Take a vacation
Correct Answer: A) Invest more in a losing trade because they have already spent money
on it
12. "Hindsight Bias" is:
A) Predicting the market before it happens
B) The tendency to see events as having been more predictable than they actually were (the "I
knew it all along" phenomenon)
C) Looking at a screen from behind
D) Trading with only one eye open
Correct Answer: B) The tendency to see events as having been more predictable than
they actually were
13. "Availability Heuristic" causes traders to:
A) Use only information that is easily remembered or readily available
B) Search for information in deep archives
C) Wait for the market to close to make decisions
D) Avoid news reports
Correct Answer: A) Use only information that is easily remembered or readily available
14. What is "FOMO" (Fear Of Missing Out)?
A) Being afraid of missing a train
B) The anxiety that an exciting or interesting event may currently be happening elsewhere,
prompting impulsive trading
C) Wanting to sell a stock because it is boring
D) A fear of stock market crashes
Correct Answer: B) The anxiety that an exciting or interesting event may currently be
happening elsewhere, prompting impulsive trading
2026 Guide
Cognitive Biases, Risk Perception & Decision Making (100 Questions)
1. What is the core premise of Behavioral Finance?
A) Investors always act rationally to maximize utility
B) Market participants are influenced by psychological biases and cognitive errors
C) Markets are perfectly efficient at all times
D) Trading is purely mathematical
Correct Answer: B) Market participants are influenced by psychological biases and
cognitive errors
2. "Loss Aversion" describes the tendency for investors to:
A) Prefer to lose money slowly
B) Feel the pain of a loss twice as intensely as the pleasure of an equivalent gain
C) Avoid buying stocks that have high dividends
D) Only invest in companies that are losing money
Correct Answer: B) Feel the pain of a loss twice as intensely as the pleasure of an
equivalent gain
3. "Confirmation Bias" in trading is:
A) Seeking out information that supports your existing belief while ignoring contradictory
evidence
B) Asking a friend to confirm your stock choice
C) Making a trade after checking the official financial reports
D) Waiting for the market to open before trading
Correct Answer: A) Seeking out information that supports your existing belief while
ignoring contradictory evidence
4. "Overconfidence Bias" often leads traders to:
A) Trade less frequently
B) Trade too frequently and underestimate the risks of the market
C) Rely only on AI robots for advice
D) Always follow the advice of professionals
Correct Answer: B) Trade too frequently and underestimate the risks of the market
5. What is the "Disposition Effect"?
,A) Selling winners too early and holding onto losers for too long
B) Selling all assets as soon as the market opens
C) Buying only stocks that are falling
D) Disposing of your portfolio every month
Correct Answer: A) Selling winners too early and holding onto losers for too long
6. "Herding Behavior" occurs when:
A) A trader acts alone in their office
B) Investors follow the actions of a larger group, regardless of their own analysis
C) Investors buy stocks that have been ignored by everyone
D) A company sells its products to other companies
Correct Answer: B) Investors follow the actions of a larger group, regardless of their own
analysis
7. What is "Anchoring Bias"?
A) Relying too heavily on the first piece of information encountered (the "anchor") when making
decisions
B) Being afraid of the market dropping
C) Investing only in boat companies
D) Using the same password for all trading accounts
Correct Answer: A) Relying too heavily on the first piece of information encountered (the
"anchor") when making decisions
8. "Recency Bias" is the tendency to:
A) Predict the future based on the last 100 years
B) Overweight the importance of recent events and assume they will continue in the future
C) Buy stocks that haven't moved in a month
D) Forget everything that happened yesterday
Correct Answer: B) Overweight the importance of recent events and assume they will
continue in the future
9. What is "Framing Effect"?
A) Putting a stock price in a picture frame
B) Reacting differently to information depending on how it is presented (e.g., "90% success rate"
vs. "10% failure rate")
C) Building a new house
D) Trading stocks from a specific frame of time
Correct Answer: B) Reacting differently to information depending on how it is presented
, 10. "Mental Accounting" refers to:
A) Counting money in your head
B) The tendency to treat money differently depending on its source or intended use
C) Being afraid of calculators
D) Creating a separate bank account for every stock
Correct Answer: B) The tendency to treat money differently depending on its source or
intended use
11. "Sunk Cost Fallacy" leads traders to:
A) Invest more in a losing trade because they have already spent money on it
B) Sell a losing trade immediately
C) Stop trading entirely
D) Take a vacation
Correct Answer: A) Invest more in a losing trade because they have already spent money
on it
12. "Hindsight Bias" is:
A) Predicting the market before it happens
B) The tendency to see events as having been more predictable than they actually were (the "I
knew it all along" phenomenon)
C) Looking at a screen from behind
D) Trading with only one eye open
Correct Answer: B) The tendency to see events as having been more predictable than
they actually were
13. "Availability Heuristic" causes traders to:
A) Use only information that is easily remembered or readily available
B) Search for information in deep archives
C) Wait for the market to close to make decisions
D) Avoid news reports
Correct Answer: A) Use only information that is easily remembered or readily available
14. What is "FOMO" (Fear Of Missing Out)?
A) Being afraid of missing a train
B) The anxiety that an exciting or interesting event may currently be happening elsewhere,
prompting impulsive trading
C) Wanting to sell a stock because it is boring
D) A fear of stock market crashes
Correct Answer: B) The anxiety that an exciting or interesting event may currently be
happening elsewhere, prompting impulsive trading
