Conservatism bias

Keith Tan, CFA

A belief perseverance bias in which people maintain their prior views or forecasts by inadequately incorporating new information.

This usually occurs when market participants rationally form an initial view, but then fail to change that view as new information becomes available. Don’t be mistaken that conservatism means that the investor is a conservative investor. Rather, it means that the investor has a tendency to conserve his or her prevailing belief, being slow to react to new information that may contradict the belief.

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