An experienced investor bought shares in Company X at $50 per share. The stock has since fallen to $30. Despite no change in the company's fundamentals, the investor averaged down, buying more shares at $30, convinced it must return to its original purchase price. This investor is primarily influenced by:

Question: An experienced investor bought shares in Company X at $50 per share. The stock has since fallen to $30. Despite no change in the company's fundamentals, the investor averaged down, buying more shares at $30, convinced it must return to its original purchase price. This investor is primarily influenced by:

Answer options: ✅ Anchoring and Loss Aversion

• Recency Bias and Overconfidence
• Mental Accounting and Sunk Cost Fallacy
• Availability Heuristic and Confirmation Bias

Correct answer: Anchoring and Loss Aversion

Explanation: The investor is anchored to the original purchase price of $50, believing the stock will return to this 'anchor.' Additionally, loss aversion drives the averaging down, as they are trying to avoid realizing the initial loss by recovering to or exceeding their original cost basis.