Prospect theory says that
A)people should follow their gut feelings and purchase stocks they think have good prospects.
B)people will tend to sell off winning investments too quickly and hold onto losing ones too long.
C)people tend to be overly pessimistic about developments in the stock market.
D)during a speculative bubble most people are thinking that they won't be able to get out of the market before the bubble bursts.

Question

Quizplus · Accepted Answer

Prospect theory states that people are risk-averse and tend to experience more pain from a loss than pleasure from an equivalent gain. This leads individuals to sell off their winning investments too early in order to lock in gains and hold onto their losing investments too long in the hope that the investments will eventually rebound. This behavior leads to suboptimal investment decisions.

Prospect Theory Says That