Which of the following behaviors is consistent with escalation bias?
A) buying more of a stock as it increases in value
B) buying more of a stock as it decreases in value
C) selling a stock as it decreases in value
D) selling a stock as it increases in value
E) buying or selling a stock as it increases in value

Question

Quizplus · Accepted Answer

Escalation bias, also known as the sunk cost fallacy, occurs when individuals continue to invest in a decision based on cumulative prior investment (time, money, resources) rather than the current and future costs and benefits. Buying more of a stock as it decreases in value is an example of escalation bias because the investor might be trying to "average down" their investment cost, hoping for a turnaround that justifies their initial decision, despite potentially better alternatives available.

Which of the Following Behaviors Is Consistent with Escalation Bias