Asked by Breanna Clayton on Jul 25, 2024
Verified
Research has shown that investors in the stock market are often subject to a small-numbers bias, meaning that they believe that:
A) the stock market is a zero-sum game, where long-term gains cancel out with long-term losses.
B) the likelihood of earning a steady positive return in the market over the long run is very small.
C) high returns over the past few years are likely to be followed by more high returns over the next few years
D) high returns over the past few years are likely to be followed by low returns eventually over the next few years.
Small-Numbers Bias
A situation in markets where the fewness of buyers or sellers can significantly impact the negotiation power and market outcomes.
Stock Market
A public market for buying, selling, and trading company stocks and securities, reflecting the economic health of a country or region.
Investors
Individuals or entities that allocate capital with the expectation of receiving financial returns, typically through the purchase of assets like stocks or bonds.
- Acknowledge the frequent biases present in consumer decision processes and the importance of anchoring.
Verified Answer
FD
fatemeh dashtbozorgAug 01, 2024
Final Answer :
C
Explanation :
Small-numbers bias refers to the tendency of individuals to draw broad conclusions from a small set of data or experiences. In the context of the stock market, this bias leads investors to believe that recent patterns of high returns will continue into the future, despite the market's inherent volatility and unpredictability.
Learning Objectives
- Acknowledge the frequent biases present in consumer decision processes and the importance of anchoring.