Conservatism Bias Essay

Conservatism bias

What is Conservatism bias ?

Conservatism bias is a mental process in which people cling to their prior views or forecasts at the expense of acknowledging new information.

Conservatism bias refers to under-reacting to new information. Conservatism bias is the tendency to cling tenaciously to a view or a forecast. Once a position has been stated most people find it very hard to move away from that view. When movement does occur it is only very slow , this creates under-reaction to events

It occurs people maintain their prior view without properly incorporating new information. You consider your original opinion and the information that formed to be quite meaningful, but new information learned after the opinion has been formed is considered to be not as

It resists change. Assumptions that worked well in the past continue to be applied to new situations long after they have become outmoded .

A combination of overconfidence, together with anchoring and adjustment leads investors and analysts to adapt insufficiently to the arrival of new information. The result is conservatism.

Practical implications: People are more likely to be slow at taking action on new information than they rationally should.

Why is this?

First, information can be hard to process. Second, truly bad information is sometimes difficult to come to grips with if, especially if you’ve publicly shared your thesis. It means you were wrong and doesn’t feel good at all.

The easy thing psychologically is to see the new information but subtly dismiss it as not important enough to change your original thesis. The hard thing to do is figure out if the information is important and whether you need to take action which might mean changing course and admitting your were wrong.

Examples for Conservatism Bias :