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thanh purchased a stock last year for $25 per share. the stock increased in value to $29 per share before declining to its current value of $20. thanh has decided to sell the stock, but only if he can receive $25 per share or better. this behavior best illustrates which one of the following characteristics?

2 Answers

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Final answer:

The behavior described in the question best illustrates the concept of a capital gain.

Step-by-step explanation:

The behavior described in the question best illustrates the concept of a capital gain. Capital gain refers to the increase in the value of an asset, such as a stock, between the time it was bought and the time it is sold. In this case, Thanh purchased the stock for $25 per share and it increased in value to $29 per share before declining to $20. Thanh has decided to sell the stock only if he can receive $25 per share or better, which indicates that he wants to sell at a price that will give him a capital gain.

User Akash Chavda
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0 votes

Final answer:

Thanh's reluctance to sell the stock for less than $25 per share, even though its current value is $20, illustrates the cognitive bias known as anchoring. It reveals his desire to avoid a capital loss by holding onto the stock in hopes of its value returning to the price he originally paid.

Step-by-step explanation:

Thanh's decision to sell the stock only if he can receive $25 per share or better, despite its current value being $20 per share, exemplifies a cognitive bias known as anchoring. Anchoring occurs when an individual depends too heavily on an initial piece of information (in this case, the original purchase price of the stock) to make subsequent decisions. Thanh is anchored to the $25 price point because that was his initial cost, and he wants to avoid a potential capital loss. This behavior is common among investors who are reluctant to sell at a loss and prefer to wait until the asset returns to its original value or higher.

Buying and selling stocks involves understanding the capital gain or loss involved in such transactions. A capital gain occurs when a stock is sold for more than the purchase price, whereas a capital loss happens when it's sold for less. In Thanh's case, selling at $20 would result in a capital loss compared to his purchase price of $25 per share.

User Skorpius
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