Asked by Zachary Smith on May 09, 2024
Verified
You have saved a total of $200,000 over the past several years. Jane, a trusted business associate, recently approached you with an offer. She has offered you a partnership in a new firm that she expects to be exceedingly profitable. Your initial investment in the partnership would be $125,000. However, Jane cannot give you any odds on that success occurring. You have decided to keep your $125,000 and forego this opportunity simply because you don't know the probability of success. Which one of the following behavior characteristics do you have?
A) Aversion to ambiguity.
B) Recency bias.
C) Sentiment-based risk aversion.
D) Clustering illusion.
E) Money illusion.
Aversion to Ambiguity
The preference to avoid options, decisions, or outcomes with unknown probabilities over those with known probabilities.
Probability of Success
The likelihood or chance that a particular project, investment, or action will successfully achieve its intended outcome.
Business Associate
A term that describes a person or entity engaged in commercial, non-commercial, or financial activities with another individual or organization, often implying a level of formal partnership or cooperation.
- Explain the influence of cognitive and emotional prejudices on making investment choices.
- Elucidate the significance and consequences of engaging in risk-taking activities within financial decision-making processes.
Verified Answer
BG
Bailey GrgurichMay 09, 2024
Final Answer :
A
Explanation :
Choosing not to invest due to the uncertainty or lack of information about the probability of success demonstrates an aversion to ambiguity. This behavior is characterized by a preference for situations with known risks over those with unknown risks.
Learning Objectives
- Explain the influence of cognitive and emotional prejudices on making investment choices.
- Elucidate the significance and consequences of engaging in risk-taking activities within financial decision-making processes.