The Conservatism Bias

The tendency for investors to react too slowly to changes in the market.

This 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 even when they are presented with new data. When movement does occur it is only very slow which creates under-reaction to events. This slowness to revise prior probability estimates is known as “conservatism.”