Consumer Confidence Index V

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     The stock market tends to move in response to the release of the U.S. consumer confidence index (CCI) each month, signaling that individuals make investment decisions on the basis of this information. Such a behavior is mostly irrational. The CCI is generally agreed to be a lagging indicator; by the time the CCI has been released, the stock market should have already reflected the latest adjustments to its prices based on consumer sentiment. Furthermore, the CCI, to the degree that it reflects on the stock market, reflects only on the stock market as a whole, not on individual stocks. The questions that make up the CCI, indeed, gauge individual levels of confidence about factors, such as employment rates, that should have little direct bearing on most individual stocks relative to other factors. To dampen the influence of the CCI on the stock market, the Conference Board, the nonprofit group that reveals the information each month, should adjust its timetable in order to publish the CCI outside of stock market hours. In that case, the impact of the CCI on stock market prices will be smoothed and is more likely to reflect individual investors' business estimates and not their animal whims.

The passage suggests that an individual investor operating according to the animal whims mentioned in the highlighted text would be most likely to do which of the following?

Review: Consumer Confidence Index V


Explanation

This question asks about "animal whim," a term that is not defined in the passage. But we can infer from the passage that an investor acting on animal whim is one of the investors who uses the CCI for stock decisions, and who is therefore irrational. We can infer also that the animal-whim investor is inclined to act quickly, since the effect of this investing would be smoothed by releasing the CCI outside of business hours. Let's see which answer choice is compatible with these points. Choice (A) fits with the notion of irrationality. Choice (B) doesn't fit. Choice (C) is similar to rationality, but it implies randomness, which isn't the case with these investors, who are responding to the CCI. Choice (D), like (B), introduces an emotion that sounds "animal" in a sense but is supported by the passage. Choice (E) describes a form of behavior that has the whiff of irrationality, since the investor is investing a large amount, doing it suddenly, and doing it on the base of one piece of information that only "hints." We are left with (A) and (E); which is better supported? A problem with (E) is that we don't know whether the piece of information is correct or not. The author has given us no reason to believe that single pieces of information can't be important or that swift investment decisions are always hasty. Another problem is that the investor in (E) is acting based on information about a particular stock, and the author has specifically indicated that acting on information about specific stocks is rational. So (E) is out. As for (A), do we have grounds to know that the investors know that their reasons are unsound? We have some ground, since, for example, the CCI is "generally agreed to be a lagging indicator."

The correct answer is (A).


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