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Answer: The halo effect, where a favorable evaluation of certain traits leads to an overly optimistic view of an investment.
**Explanation:** The halo effect is a manifestation of representativeness bias, where investors extend a positive evaluation of specific characteristics (e.g., past performance) to an overall positive view of an investment, often ignoring underlying risks. This can lead to extrapolation of recent performance into unrealistic future expectations. Momentum (Option A) is more related to biases like availability or loss aversion, while bubbles and crashes (Option C) are typically driven by overconfidence and confirmation bias.
Author: LeetQuiz Editorial Team
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Which of the following behavioral biases is most closely linked to representativeness bias?
A
Momentum, which is driven by fear of missing out or recent market trends, not representativeness bias.
B
The halo effect, where a favorable evaluation of certain traits leads to an overly optimistic view of an investment.
C
Bubbles and crashes, primarily associated with overconfidence rather than representativeness bias.
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