Eli purchased stock in XYC Inc. at $31 a share, but the stock is now worth only $19 a share. Eli believes that XYC's stock will underperform the average stock market return. However, Eli won't sell his stock until it reaches at least $31. Eli's decision making is:
A) biased by sunk costs.
B) economically rational.
C) biased by self-control problems.
D) the result of hyperbolic discounting.

Question

Quizplus · Accepted Answer

Eli's decision making is biased by sunk costs because he is holding onto the stock in hopes of at least breaking even on his original investment of $31 per share, even though the current market value of the stock is only $19 per share. This is a common behavioral economics phenomenon known as the sunk cost fallacy, where people make decisions based on past investments rather than looking at current market conditions and future prospects.

Eli Purchased Stock in XYC Inc