Final answer:
Larry's decision to sell stocks and invest in government bonds indicates that he is b. relatively risk averse, prioritizing lower-risk investments over potentially higher returns with additional risk. Larry's actions reflect a cautious investment strategy where capital preservation is more important than high returns.
Step-by-step explanation:
Larry has decided to sell the riskier stocks he inherited from his aunt and invest in less risky government bonds. This decision suggests that Larry is relatively risk averse. Risk aversion is a preference for certainty over uncertainty, leading individuals to opt for a less risky outcome even if it might offer less potential for higher returns. This behavior is commonly associated with a cautious investment strategy where an individual prioritizes the preservation of capital over potential for higher, yet riskier, gains. Larry's choice to move into government bonds, which are considered to be one of the safest investment classes due to their low default risk, indicates a clear preference for risk mitigation.
The concept of sunk cost fallacy does not apply in this context, as it refers to continuing a behavior or endeavor as a result of previously invested resources (time, money, or effort), even when continuing is not the best course of action. Larry's decision is based on his risk preference rather than past investments. Further, status quo bias would have applied if Larry chose not to alter his aunt's initial investment despite potential benefits. This also does not apply, as Larry actively made a change. Lastly, Larry being present-oriented is not relevant here; his actions demonstrate a consideration for the future stability and safety of his investment, rather than an immediate or short-term focus.