An investor is asked to choose between:
A. An assured loss of $400
B. A 50% chance of losing $1,000 and a 50% chance of losing nothing
The investor chooses option B.

It's likely the investor is exhibiting:

A. no bias
B. loss-aversion bias
C. over-confidence bias

Correct Answer: B

Loss-aversion bias says investors may hold onto loss-making investments for a longer period than necessary in the hope that they would return to profitability. In this case, B's expected value (-$500) is less than the outcome choosing option A (-$400). This is consistent with refusing to sell a losing investment in order to avoid recognizing a loss.