Which bias results in investors being slow to adjust their beliefs based on new information?

Conservatism bias refers to the tendency of investors to be slow in adjusting their beliefs or opinions in response to new evidence or information. This phenomenon occurs because individuals often have a predisposition to cling to their pre-existing beliefs and views, leading them to underreact to new information, even when it signals a change in market conditions or company performance.

Investors exhibiting conservatism bias tend to place more weight on their prior knowledge or earlier data, rather than fully incorporating recent developments into their decision-making processes. As a result, they may miss out on opportunities or fail to mitigate risks effectively because they are not responsive enough to the evolving landscape of the information that could affect their investments.

In this context, conservatism bias can lead to suboptimal investment decisions, as market participants may hold onto pessimistic or overly optimistic views longer than warranted by changing data, thereby potentially increasing volatility and the risk of losses in their portfolios.