Steve purchased a stock last year for $34 a share. The stock increased in value to $36 a share before declining to its current value of $30. Steve has decided to sell the stock, but only if he can receive $34 a share or better. Steve is suffering most from which one of the following behavioral conditions?

A) Representativeness heuristic.
B) House money.
C) False fallacy.
D) Randomness.
E) Arbitrage reaction.

Question

Amanpreet Sidhu · Accepted Answer

Final Answer : C, Explanation :  Steve is exhibiting the false fallacy, which involves holding onto a losing investment with the hope that it will return to its original value or better, despite current market conditions suggesting otherwise. This behavior is not related to the representativeness heuristic, house money effect, randomness, or arbitrage reaction, which involve different psychological biases and decision-making errors.

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