An investor purchases shares of an index fund.The investor could take on the same level of risk by taking out a loan and purchasing a higher risk specialty fund.The Sharpe measure on this complete portfolio is higher than her existing investment.What behavioral concept prevents the investor from taking out the loan and investing in the index fund?
A) Framing bias
B) Excessive volatility
C) Loss aversion
D) Mental accounting

Question

Quizplus · Accepted Answer

Loss aversion is the behavioral concept that causes investors to prioritize avoiding losses over achieving gains. This can lead them to stick with their current investment rather than taking on additional risk, such as borrowing to invest in a specialty fund.

An Investor Purchases Shares of an Index Fund