Investors react stronger to a financial __________ than they do to a financial __________, according to prospect theory.

Question

Quizplus · Accepted Answer

According to prospect theory, investors tend to react more strongly or feel more pain to financial losses than they feel pleasure from equivalent financial gains (profit). This phenomenon is known as loss aversion, which causes individuals to weigh losses about twice as heavily as gains of the same magnitude. Therefore, option B (loss; profit) is the correct answer.

Investors React Stronger to a Financial __________ Than They Do