Amy is the chief financial officer of a retail toy store.Recently,she decided that the firm should expand its operations and open two additional stores.Within a very brief period,it was obvious that Amy had made a very bad decision in opening those stores,given that the economy is in the middle of a severe recession.In reflecting back on her decision,Amy realizes that she made a bad decision due to a reasoning error.Which one of the following areas of study best applies to this situation?

Question

Quizplus · Accepted Answer

Behavioral finance deals with how psychological and cognitive biases influence financial decisions. Amy's decision to expand during a severe recession could have been influenced by overconfidence bias or herd mentality. She may have believed that the firm could beat the odds or followed the trend of other successful retailers without considering the unique circumstances of her own business. Amy should have taken a more objective and thorough approach to decision-making, considering both financial data and psychological factors. Therefore, the best area of study that applies to this situation is E) behavioral finance.

Amy Is the Chief Financial Officer of a Retail Toy