In the
conservatism bias investors might be slow to react to new information or may avoid the difficulties associated with analyzing new information and simply stay with previous forecasts. The result may be a tendency to hold winners or losers too long. This is closely related to
anchoring and adjustment where Individuals seem to be 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 this target in their mind, they seem pulled toward it. The
conservatism bias is a cognitive error in belief persistence whereas
anchoring and adjustment is a cognitive error in information processing. In this question there is not enough information to determine if the behavioral trait described in the correct answer represents
conservatism or
anchoring and adjustment. The other two answer choices represent the
confirmation bias where the investor dismisses information that is contrary to their beliefs and the
representativeness bias. In the representative bias the investor views new information as being representative of past experiences and places the new information into a category based on if-then heuristics.
