What is the difference between conservatism and representativeness in behavioral finance?

They are opposites, and that is what makes vignettes confusing. Both involve mishandling new information, but in different directions.

• Conservatism: the investor underweights new evidence. They cling to a prior belief even when fresh data should move it. The clue is unchanged behavior after meaningful new information.
• Representativeness: the investor overweights a small or unrepresentative sample as if it were a trend. They classify by pattern rather than base rate. The clue is over-reaction to limited data.

Imagine a stock with declining quarterly earnings:

• Conservatism: the analyst keeps the buy rating after three misses, citing the original thesis. The data has changed but the belief has not.
• Representativeness: the analyst flips to a strong sell after one disappointing quarter, calling it the start of a long decline. One quarter is being treated as the start of a trend.

The exam often pairs these with anchoring or hindsight to test whether you can untangle the underlying mistake.