Bayesian rigid views

CFA Level III
#1

whats the difference between bayseian rigid views and anchoring?

#2

Here’s my take on this: Bayesian rigidity is a cause of chronic market inefficiencies, and is caused by investors who insist on retaining old views, or who seek view-confirming information, even in light of other information. Anchoring, within the curriculum, refers to a couple of different things: 1) It is a psychological trap that exists when setting capital market expectations. In this context it refers to placing excess weight on initial impressions of a situation. 2) With respect to heuristic biases, it refers to the tendency to respond too conservatively to new information or adjusting one’s projections too conservatively when presented with new information. This causes earnings surprises to be followed by even more earnings surprises. So I guess Bayesian rigidity and #1 sound similiar, but #2 is somewhat different.

#3

I think Bayesian Rigidity is similar to Confirming Evidence Trap, not the same though. For Bayesian rigidity I think an investor will seek out information that confirms their viewpoint vs seeking out information that migh dispute it.

#4

so you are saying in bayesian you are looking for info that confirms your initial research while anchoring & adj you are presented new info that counters your conclusion but you stick to your original stance?

#5

Bayesian regidity is an extreme case of anchoring combined with conservatism

#6

i have a different take on this, but i can’t gurantee its right… Anchoring: Fails to fully adjust FORECASTS for new information Bayesian: Creates GOALS AND POLICIES and then refuses to update them despite new information. Basically, the only difference that I have been able to determine is that it depends on what the new information relates to – forecasts/ estimates or porfolio goals. For example, if you had an investor who absolutely had to invest in tech stocks in 2002 and refused to realize that the tech bubble was over, that would be an example of bayesian. if you had an analyst who refused to fully lower his price target for tech companies that were now less profitable, that would be anchoring. i’m not sure if that’s 100% right but i spent some time on this today and that was the best i could come up with… it’s pretty vague (as usual)