Question

5. An investor subject to behavioral biases is most likely to:

   1. Maximize end of period wealth.

   2. Trade in efficient markets.

   3. Allow emotions to determine buy/sell decisions.

   4. Require additional expected return for taking on more risk.

Answer 1

Option C is correct

An investor subject to behavioral biases is most likely to allow emotions to determine buy/sell decisions. When making financial decisions, we should not let our emotions taking over our logical thinking mind. However, if we are subject to behavioural biases then emotions get better of us and interfere with our decisions.

Option A is incorrect because behavioral biases may actually minimize end of period wealth

Option B is incorrect because trading in efficient market is not in control of any investor. The market may be inefficient and may remain inefficient for a long period of time.

Option D is incorrect because taking on more risk due to behavioral biases is not a justification for seeking additional expected return

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