Question

Which term best applies to the situation where an investor cares less about losing $1 of his profits than he does about losing $1 of his original investment?

Multiple Choice

• Get-evenitis

• Snakebite effect

• Familiarity

• Home bias

• House money effect

Answer 1

Answer:-

The Option House money effect is correct. This is the tendency of investors to take on greater risks when investing with profits than the original investment. So the investor cares less about losing from his profits than he does about losing from the original investment.

The option Get-evenitis is incorrect. It is referred as the tendency of the investor to not cut short the losses bu instead wait till the break even price paid for the investment is reached.

The option Snakebite effect is incorrect. The investor who have experienced huge losses is afraid to take risks and avoid investing in riskier securities.

The option Familiarity is incorrect. This is the tendency of the investor to invest in stocks of companies that his is familiar.

The option Home bias is incorrect. This is the tendency of an investor to invest in domestic equities rather than diversifying his portfolio in foreign equities.