What type of behavioral bias do cautious investors typically exhibit?

Cautious investors often exhibit loss aversion, a behavioral bias that reflects their tendency to prefer avoiding losses over acquiring equivalent gains. This principle is rooted in the idea that the pain of losing money is psychologically more impactful than the pleasure gained from making profits. As a result, cautious investors may be more reluctant to take risks that could lead to losses, even when the potential for profit exists.

Loss aversion can lead to overly conservative decision-making, where investors avoid beneficial investment opportunities out of fear of experiencing a loss. They may stay in less risky assets even when the market shows potential for growth, which could hinder their overall investment performance.

In contrast, other behavioral biases, such as confirmation bias or overconfidence, do not specifically address the cautious nature of investors but rather pertain to how they process information and assess their abilities. Therefore, loss aversion accurately captures the essence of why cautious investors behave as they do.