Description

Tendency for people to place too much weight on prior experience rather than updating beliefs with new information.

Edwards, W. (1968). Conservatism in human information processing. In B. Kleinmutz (Ed.), Formal representation of human judgment (pp. 17–52). New York: John Wiley and Sons.

Items (1)

When you recently heard news that has potentially negative implications for the price of an investment you own, what is your natural reaction to this information?

a. I tend ignore the information. Because I have already made the investment, I’ve already determined that the company will be successful. (3)
b. I will re-evaluate my reasons for buying the stock, but I will probably stick with it because I usually stick with my original determination that a company will be successful. (2)
c. I will reevaluate my reasoning for buying the stock and will decide, based on an objective consideration of all facts, what to do next. (1)

Scoring

Each option is associated with a given number of points (higher number of points indicating a more pronounced bias).

Sources

Pompian, M. M. (2011). Behavioral finance and wealth management: How to build optimal portfolios that account for investor biases. New Jersey: John Wiley & Sons, Inc.

Rieger, M. O., Wang, M., Huang, P.-K., & Hsu, Y.-L. (2022). Survey evidence on core factors of behavioral biases. Journal of Behavioral and Experimental Economics, 101912.