NISM Certifications · NISM-Series-X-B: Investment Adviser (Level 2) · Basics of Behavioural Finance
Ms. Kapoor received a Rs 5 lakh annual bonus and spends it freely on luxury travel, while carefully saving every rupee of her regular salary. Her adviser notes she treats money differently based on its source. This is best described as:
This is mental accounting. The client assigns money to separate mental categories by source, spending a bonus freely while saving salary, even though rupees are fungible and should be evaluated within one overall portfolio and budget.
- AMental accountingCorrect
- BOverconfidence
- CHindsight bias
- DAvailability bias
Explanation
Mental accounting is treating money differently depending on its origin or label, such as bonus versus salary, though money is fungible. Overconfidence, hindsight and availability concern judgement of ability, past events and recall respectively.
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