Question

Question: Jill Davis tells her broker that she does not want to sell her stocks that are below the price she paid for them. She believes that if she just holds on to them a little longer, they will recover, at which time she will sell them. What behavioral characteristic does Davis have as the basis for her decision making?

a. Loss aversion

b. Conservatism

c. Representativeness

Short answer

Answer

a. Loss aversion

Step-by-step solution

Definition

The tendency (not necessarily rational) to hold on to a stock even if it is making no gains primarily due to the fear of losing is called the loss aversion.

Explanation on behavior characteristics

Since Davis shows a typical fear of holding on even if it doesn’t offer any gains, she is exhibiting the behaviour of ‘Loss aversion” as explained above.