This is the boss fight, and the boss is you. Ten lessons taught you the exact mental shortcuts that quietly drain real accounts — selling winners too early, doubling down on losers, mistaking a vivid headline for a probability, following a stampede off a cliff. Now there are no charts to lean on and no worked example whispering the answer. Most of the wrong options below are the very traps the course warned you about, dressed up to sound like wisdom. Catch them, and you’ve earned the badge for real.
How this exam works
This is a graded exam. Questions come one at a time. Once you submit an answer it is final — there is no going back, no second try, and a wrong answer simply fails that question. Your score stays hidden until the end, where you need 70% to pass. Read every option twice before you commit.
Kahneman's two-system model splits thinking into System 1 (fast, automatic, emotional) and System 2 (slow, effortful, deliberate). Which statement about them is TRUE?
Select an answer to continue.
Course Recap
One last chunking of the whole course — ten ways the mind misfires around money, and the one habit that beats them all: build a process so the decision is already made before your gut gets a vote.
Big picture
Investment Psychology — the whole course
- Thinking clearly about money
- Two minds & heuristics
- System 1 fast/automatic vs lazy, deliberate System 2
- Heuristics: handy shortcuts, predictable errors
- Markets are hostile to gut instinct
- Prospect theory
- Reference points; losses hurt ~2× gains
- Risk-seeking in losses (chase break-even)
- We overweight rare events
- Sunk costs & disposition
- Sunk cost: ignore the past, weigh the future
- Disposition effect: sell winners, hold losers (PGR ≈ 1.5× PLR)
- "Would I buy this today?"
- Overconfidence & overtrading
- Overprecision: 90% intervals hit ~45%
- Active traders lag ~6.5pp/yr net
- Self-attribution stops you learning
- Anchoring, framing & mental accounting
- Purchase price / 52-week high are anchors
- Same fact, gain vs loss frame, flips risk
- Money is fungible; labels can mislead
- Availability & base rates
- Vivid + recent feels more probable
- Great company ≠ great stock
- Gambler's fallacy: streaks have no memory
- Confirmation & narrative
- You notice only what fits your view
- Tidy stories make noise feel inevitable
- Write a falsifiable thesis
- Herding, FOMO & bubbles
- Information cascades stampede on thin info
- Bubbles obvious only in hindsight
- Contrarianism is not a free win
- Survivorship & selection bias
- Dead funds vanish (~1–1.5pp/yr inflation)
- Backfill & cherry-picked starts
- Vet records: full universe, net, out-of-sample
- The debiasing toolkit
- Judge the process, not the outcome
- Premortem, checklist, decision journal
- Rules & automation beat willpower
- Two minds & heuristics
Key Takeaways
What to carry out of this course
- Your gut is a bad investor. System 1 is fast and confident; markets are noisy and slow-feedback, so intuition trains the wrong reflexes. Engage lazy System 2 deliberately — biases are shortcuts that misfire in predictable ways.
- Losses dominate the mind. We judge from reference points, feel losses about twice as hard as equal gains, and turn risk-seeking to dodge a sure loss — which is why we sell winners early, ride losers down (PGR ≈ 1.5× PLR), and double down to chase break-even. Ask ‘would I buy this today?’
- Confidence is mostly miscalibration. Stated 90% intervals are right only ~45% of the time, and the most active traders underperform buy-and-hold by ~6.5 percentage points a year, net — overtrading is a tax on overconfidence.
- Numbers and stories both lie to you. Anchors (purchase price, 52-week high, price targets), framing, vivid availability, base-rate neglect, confirmation bias and tidy narratives all distort judgement. Lean on base rates and a falsifiable, pre-written thesis.
- The crowd and the brochure are filtered. Information cascades stampede on thin information and bubbles look obvious only afterward (contrarianism isn’t a free win); survivorship bias inflates fund averages by ~1–1.5 points a year. Vet records on the full universe, net of costs, out of sample.
- You can’t delete biases — you engineer around them. Judge the process, not the outcome; run premortems, a written decision journal, pre-committed sell rules, and automation. Process beats willpower, every time.