Which of the following behaviours 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 losing proposition due to the cumulative prior investment (time, money, resources) rather than cutting their losses. Buying more of a stock as it decreases in value is an example of escalation bias, as the investor continues to invest in the hope of recouping losses rather than accepting the loss and moving on.

Which of the Following Behaviours Is Consistent with Escalation Bias