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14 August, 16:17

Match each of the following behaviors with the appropriate bias, as discussed in the chapter. a. Wanda owns Happy Clam Oil Exploration, but due to recent events, the share price is down 30 percent from when she bought it. She doesn't want to sell now because it had previously been up as much as 25 percent. b. Drew doesn't believe his friends who tell him that he cannot time the market. He has been successful in making profits from his trades this past month and plans to continue his day trading. c. Yusuf has been watching the gold market go up and up, so he decides that since everyone is buying gold he needs to do so as well.

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  1. 14 August, 16:20
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    Disposition effect, Overconfidence and herd behavior

    Explanation:

    a. Wanda's appropriate behavioral bias is Disposition effect

    The disposition effect is an anomaly discovered in behavioral finance. It relates to the tendency of investors to sell assets that have increased in value, while keeping assets that have dropped in value.

    b. Drew's appropriate behavioral bias is Overconfidence

    Overconfidence effect is a well-established bias in which a person's subjective confidence in his or her judgement is reliably greater than the objective accuracy of those judgments. Hence, he thinks his sense of direction is much better than it actually is.

    c. Yusuf's appropriate behavioral bias is herd behavior

    Herd behavior is the behavior of individuals in a group acting collectively without centralized direction.
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