Behavioral Finance - Biases

If X purchased shares of a company at $20. The shares currently trade at $7.50 and the company’s prospects have further worsened. If he chooses not to sell the investment now, he most likely exhibits:

  1. Loss Aversion

  2. Framing

  3. Conservatism

I am no expert in BF. But I will still attempt

The answer is 1

Classic example of 1. If you have doubts it is 3, I would recommend to insert “$25” instead of “$7.5” and “but the company prospects have worsened”. Then you would have conservatism at its best.

Hi, The answer is Loss aversion. I believe it has to be conservatism as he is fail to update the perception when new information arises.

Where does it say that he’s failed to update his perception?

All we know for sure is that he’s not selling.

thank you, I got your point.

My pleasure.