Certified Plan Sponsor Professional (CPSP) Practice Exam

True or False: The fear of loss impedes some plan participants' saving and investing decisions more than the value of potential gains.

1. True

2. False

3. Partially True

4. Not enough information

The correct answer is: True

The assertion that the fear of loss impedes some plan participants' saving and investing decisions more than the value of potential gains is rooted in behavioral finance principles. Loss aversion, a key concept in this field, suggests that individuals tend to prefer avoiding losses over acquiring equivalent gains. This means that the psychological impact of losing money can significantly outweigh the positive feelings associated with gaining money. In the context of saving and investing, this fear of loss can lead to overly cautious behavior, causing participants to shy away from potentially beneficial investments or from contributing sufficiently to their savings plans. They might choose safer, less rewarding options or delay investing altogether due to the anxiety associated with possible losses. This behavior can ultimately hinder their ability to grow their savings and achieve long-term financial goals. Therefore, the statement is true: the fear of loss can indeed have a more significant impact on decision-making for some participants than the perceived value of potential gains.