1.

Which of the following is not true about bounded rationality

a. Assumptions about rational economic man are not reflective of reality.
b. It is impossible for every individual to possess perfect information about every possible
outcome for every single decision.
c. Only outcomes that offer maximum utility are good.
d. There are limits to conducting detailed analysis to reach the optimal choice
2. Which of the following statements does not conform with behavioral finance?
a. Investors are human beings who have emotions and fears. As a result, their decisions and
behavior patterns may appear to be inconsistent and irrational.
b. Market efficiency should not be totally abandoned in favor of behavioral finance.
c. Agents and markets may not behave in accordance with classical theories.
d. Investors can be irrational at times, markets can be inefficient, but professionals of financial
management are unbiased.
3. Investors mentally start with an equal split of the amount to be invested among all given
alternatives then adjust the allocation (insufficiently) according to the attractiveness of the
alternatives. This bias is called_______
a. Conservatism
b. Status quo bias
c. Anchoring
d. Availability bias
4. You’re reviewing the price history of Super Cabs. You see that the firm’s share price was
$20 a year ago. Six months ago, the price had risen to $50. However, the price today is $40.
Suppose someone had told you one year ago that today’s price was $40. Now, suppose
someone told you that six months ago. What are your reactions an example of?
A. Anchoring
B. Availability bias
C. Disposition effect
D. Hindsight bias
E. Hyperbolic discounting
5. You believe that current cryptocurrency valuations are unsustainable, and you feel that
this market is in for a major correction. You see that MadeUpCoin rose by 80% over the
past week, then fell by 10% yesterday, before rising by 15% today to its current level. You
are convinced that the fall yesterday proves you are correct. What would this best be an
example of?
B. Confirmation bias

6. Your client is completely convinced that a good company is a good investment. This is an
example of
a. home bias
b. overconfidence
c. momentum
d. representativeness
7. Which of the following sequences is more likely to occur when a fair coin is tossed?
(i) HTHTHT
(ii)TTTTTT
a. (i) is more likely
b. (ii) is more likely
c. they are equally likely
d. I need additional information to answer this question.
8. Investors who believes in the predictions of people like Peter Schiff, David Tice and Jim
Chanos, who all claimed to have predicted the 2008 financial crisis, are suffering from:
A. Representativeness bias.
B. Availability heuristic/bias.
C. Affect Heuristic.
D. Mental accounting.
E. Overconfidence.
9. Massive gains in stocks like Facebook, Amazon, Apple and Google over the last few years
led investors to buy up shares of most new tech IPOs such Twitter, Snap, GoPro and FitBit.
The investors who bought these new IPOs are likely suffering from:
I. Availability heuristic/bias
II. Representativeness bias
III. Overconfidence
IV. Affect heuristic
A. I, II, III, and IV
B. III and IV only
C. I and III only
D. I, III and IV
E. I and II only