In the conservatism bias individuals unconsciously place more emphasis on the information they used to form their original forecast than on new information. They have difficultly pulling away from an original forecast as they subconsciously place less value on new information. In anchoring and adjustment individuals are anchored to a value, such as an expected price or other forecast, as if it has a gravitational pull. Unlike the conservatism bias that has similar effects but is based on how investors relate “new” information to “old” information, anchoring is based on a target number; once individuals have these targets in their minds, they seem to be unduly affected by them. Hindsight bias is when individuals perceive outcomes as reasonable and expected. It’s like saying, “This is what happened, and this is why it happened.” Their explanation is biased by the fact that the outcome actually did occur; their explanation is not a prediction, so it’s difficult to argue with. |
