Which of the following is a fundamental principle ofbehavior finance
A) the use of P/E ratios
B) the tendency to avoid acknowledging investment errors
C) selling stocks at a loss for tax purposes
D) constructing a diversified portfolio

Question

Quizplus · Accepted Answer

The fundamental principle of behavioral finance is the tendency to avoid acknowledging investment errors. This refers to the psychological bias that causes investors to hold onto losing investments in the hopes that they will eventually recover, rather than cutting their losses and moving on. This behavior often leads to poor investment performance. The other choices (A, C, and D) are not principles of behavioral finance, but rather investment strategies or financial concepts.

Which of the Following Is a Fundamental Principle Ofbehavior Finance