Question

Successful financial management requires knowledge of not only the terminology, mathematics, and techniques of financial management, but also that of human psychology and sociology. Financial and economic history in general- and market bubbles in particular-are filled with examples of both rational and irrational behaviors. Which of the following behaviors are true characterizations of a market bubble and which are false? Behavior True False Extremely high trading volumes vis-a-vis historical averages Sudden, unexpected, and significant price declines Throughout the bubble, asset market prices never exceed their intrinsic value The field of behavioral finance tends to identify and explain irrational-but-predictable financial decision-making behaviors. Among the irrational behaviors that have been identified thus far are overconfidence, anchoring bias, hindsight bias, self-attribution bias, and herding behavior. Read each of the definitions below and identify the behavior it describes: Definition Behavior People follow successful market participants and invest in assets that are performing well. People tend to ascribe success to their own talent and skill, while failure is the result of bad luck or someone else. People are overly sure of their own abilities compared to the abilities of other investors

please answer

Answer 1

1 and 2 are true. 3 is false

In a market bubble, there is extremely high trading activity. Also there are significant declines in stock prices. Asset prices are quoted much higher than their intrinsic value.

1: Herding behaviour

(People follow the trend of the crowd)

2: Self attribution bias

This is the tendency to attribute successes to personal skills and failures to factors beyond their control.

3: Overconfidence

Investors are overconfident of their actions than those of others.