Question

An investor owns 1,000 shares of IMAX Corporation. This individual thinks the company has a huge growing potential and decides not to sell any of the holdings. Explain the underlying behavior finance concepts involved and how they drive the investment decision making.

Answer 1

The underlying behaviour finance concepts involved in the above situation are

Herd behavior: Herd behavior states that people tend to mimic the financial behaviors of the majority of the herd.I f everyone thinks that the price is going to rise they will create artificial demand hence leading to increase in price of shares which will induce excessive buying by investors.

Self-attribution: Self-attribution refers to a tendency to make choices based on a confidence in self-based knowledge. Self-attribution usually stems from intrinsic confidence of a particular area. Within this category, individuals tend to rank their knowledge higher than others.In this scenario the investor will buy that stock which he thinks is good and its value will increase.