Bayesian updating
TheoryDefinition
Statistical method of updating beliefs as new evidence arrives. Start with a prior probability; new data shifts the posterior probability proportionally to the strength of the evidence.
Underlies modern quant investing — strategies update factor expected returns continuously rather than treating them as fixed. The opposite of "anchoring": Bayesians weight new evidence appropriately rather than over-weighting first impressions.
Underlies modern quant investing — strategies update factor expected returns continuously rather than treating them as fixed. The opposite of "anchoring": Bayesians weight new evidence appropriately rather than over-weighting first impressions.