Steve purchased a stock last year for $34 a share. The stock increased in value to $36 a share before declining to its current value of $30. Steve has decided to sell the stock, but only if he can receive $34 a share or better. Steve is primarily suffering from which one of the following behavioral conditions?
A) Representativeness heuristic
B) House money
C) Loss aversion
D) Randomness
E) Myopic loss aversion

Question

Quizplus · Accepted Answer

Steve's desire to only sell the stock if he can receive $34 or better indicates that he is experiencing loss aversion, which is the tendency for people to be more sensitive to losses than to gains. Even though he originally purchased the stock for $34, he is now treating the current value of $30 as a loss that he wants to avoid, and is willing to keep holding onto the stock even though its value may continue to decline.

Steve Purchased a Stock Last Year for $34 a Share