Financial Analyst: Investing in cryptocurrency is inherently risky. The market is highly volatile, unregulated, and vulnerable to sudden crashes. Therefore, no rational investor should allocate a significant portion of their portfolio to cryptocurrency.
- AThe analyst does not provide specific examples of cryptocurrency market crashes.
- BThe analyst assumes that 'rational' investors always prioritize minimizing risk above all other investment goals.
- CThe analyst fails to consider that high volatility can also lead to high returns, which might appeal to some investors.
- DThe analyst overlooks the possibility that regulations might be introduced in the future, reducing some risks.
Show answer & explanationAnswer & explanation
Correct answer: B. The analyst assumes that 'rational' investors always prioritize minimizing risk above all other investment goals.
The analyst concludes that 'no rational investor' should invest significantly in crypto due to its risks. This implicitly assumes a definition of 'rational investor' that prioritizes risk minimization above all else. However, a rational investor might have different risk tolerances, seek high returns (even with high risk), or diversify with a small high-risk allocation, all of which could be considered 'rational' depending on their goals.
Why the other options are wrong
- A. Lack of specific examples is a weakness in evidence, not the core logical flaw in the definition of rationality.
- C. This points to a potential benefit, but the core flaw is the analyst's definition of 'rationality' in investment.
- D. Future possibilities are not directly relevant to the current evaluation of an investment based on its present characteristics.
Unstated Definitional Premise (LSAT)
An unstated assumption that relies on a specific, often narrow, definition of a key term, and that definition is crucial for the argument's conclusion to follow.
- The argument's validity depends on accepting this specific definition.
- Often involves terms like 'rational,' 'moral,' 'effective,' or 'natural.'
- Challenging the definition weakens the argument significantly.
Memory trick: What's the hidden rulebook defining the key word?