Aivree wants to accumulate great wealth but she invests all of her funds in U.S. Treasury bills because she wants to avoid the potential losses she knows can occur in the stock markets. Aivree best illustrates which one of these characteristics?
A) Loss aversion
B) Gambler's fallacy
C) Disposition effect
D) Law of small numbers
E) Mental accounting

Question

Quizplus · Accepted Answer

Aivree's behavior of avoiding potential losses by investing in low-risk options demonstrates loss aversion, which is the tendency to prefer avoiding losses over acquiring gains. By avoiding any potential losses, Aivree is prioritizing the protection of her current wealth over the potential for growth.

Aivree Wants to Accumulate Great Wealth but She Invests All