Don Sampson begins a meeting with his financial advisor by outlining his investment philosophy as shown below:

Statement Number

Statement

1

Investments should offer strong return potential but with very limited risk.
I prefer to be conservative and to minimize losses, even if I miss out on
substantial growth opportunities.

2

All nongovernmental investments should be in industry leading and financially
strong companies.

3

Income needs should be met entirely through interest income and cash
dividends. All equity securities held should pay cash dividends.

4

Investment decisions should be based primarily on consensus forecasts of
general economic conditions and company specific growth.

5

If an investment falls below the purchase price, that security should be retained
until it returns to its original cost. Conversely, I prefer to take quick profits on
successful investments.

6

I will direct the purchase of investments, including derivative securities,
periodically. These aggressive investments result from personal research and
may not prove consistent with my investment policy. I have not kept records on
the performance of similar past investments, but I have had some “big winners”.

Select the statement from the table above that best illustrates each of the following behavioral finance concepts. Justify your selection.

i. Mental accounting.

ii. Overconfidence (illusion of control).

iii. Reference dependence (framing).