Does anybody know if dropping a horse down in class is a good policy in this game?

For instance,does it do a horses confidence good to win a race in which case it maybe better to run in a Group 3 and win than to be placed in a Group1.

Just interested to know if the game takes into account the confidence level of a horse as I often campaign some horses at the highest level continually .

Not sure, been experimenting with this for a while and wish I had conclusive proof one way or another. I`ve definately had some horses get it together at certain times in a season but the next season it can change.
I`ve always dropped/exploited horses who gained a nice handicap mark and reaped the rewards.
That said I`ve so far found mainly dropping a horse from group 1 to listed or group 3 may give me an easy win but it could be the horse just wasn`t good enough or just under performed when I first tried. Very hard to be conclusive. Only time and perseveranse can tell and each horse is individual.
I still keep trying though. Else what you gonna do? Retire the horse, don`t think so. In extreme cases I find my horses being ignored and spending the season without a run, total waste of resources.
Like you, I suspect, once my stable is winning I just go for it and enter the top races then think if you can`t win what`s the point. But that`s a league mentality, if that`s the case then don`t worry and keep exporting and test there lot`s. If it`s just a game issue then targeting lower races means more races and prize money so do it anyway.

I've found in SO4, more so than in any of the other versions, that horses can actually become specialists at a certain grade. I nearly always have an Ebor runner or two but also win 90% of the group races in my game. I've found that with some horses it doesn't matter the grade, they'll win anyway but others will win easily at G2 level but consistently find G1 too hot. They might be placed or be 4th or 5th but to me that seems a waste of a race when they could have targeted a G2/3 and won instead. I don't know about horses' confidence improving but I think that there are definitely specialists at certain grades in this version which didn't seem to appear true to me in previous versions.

I think if I were to make a conclusion and don`t take this as gospel.
Dropping a horse in class during a season and securing an easy win doesn`t make the horse any better than it could be anyway but it may restore the horses confidence and potential when upped in class.

I reckon it depends firstly on what happened when first tried in top class. Many factors have to be taken into consideration such as did the run of the race suit, did the jockey ride ok (and that means a lot such as positioning and when to go for it), and as mentioned before - going, did it suit. And so much more.