Question

A behavioral bias in which investors tend to be slow to react to new information and continue to maintain their prior views or forecasts:

a) Confirmation bias
b) Overconfidence bias
c) Anchoring bias
d) Herding bias

Answer 1

Anchoring bias is the cognitive bias that describes when investors are slow to incorporate new information and maintain their prior views, using initially presented information as a reference point for all future decisions.

Step-by-step explanation:

The behavioral bias in which investors tend to be slow to react to new information and continue to maintain their prior views or forecasts is known as the anchoring bias. This occurs when individuals fixate on initial information, such as a value or forecast, and use it as a reference point for all subsequent judgments, despite new information being available. The initial value "anchors" the individual's thoughts and decisions, making it difficult for them to adjust their views in light of fresh data or perspectives. For example, if an investor believes a stock is worth $100 based on initial analyses and the stock's price drops to $80 due to new market information, the investor may still cling to the $100 valuation due to anchoring bias.

Confirmation bias, on the other hand, is the tendency to focus on information that confirms one's preexisting beliefs and ignore information that contradicts them. An investor with confirmation bias might continue to gather evidence that supports their decision to invest in a particular stock, while disregarding any negative information that could suggest otherwise.