Suppose companies recently went through a credit squeeze, in which companies had difficulty obtaining credit, no matter how credit worthy the company. If a company's financial managers are keeping more cash on hand than typical, despite forecasts for an improving economy, this is possibly a result of:
A) framing
B) anchoring
C) random walk
D) overconfidence

Question

Quizplus · Accepted Answer

Anchoring refers to the tendency to rely too heavily on the first piece of information seen (in this case, the recent experience of a credit squeeze) when making decisions. Financial managers may be anchoring on the recent difficulty in obtaining credit and thus are keeping more cash on hand as a precaution, despite positive economic forecasts.

Suppose Companies Recently Went Through a Credit Squeeze, in Which