Behavioral finance FAQ / Glossary (Recency)
This is a separate page of the R section of the Glossary
Behavioral finance FAQ / Glossary (Recency)
Dates of related message(s) in the Behavioral-Finance group (*):
Year/month, d: developed / discussed, i: incidental
See memory, primacy, anchoring
Was there a day before yesterday?
Definition
The recency bias is rather widespread mental phenomenon by which we tend to
give more importance to recent events
than to older ones.
Also called the short memory (see that word), it is a kind of mental myopia that focuses
on the most recent information / occurrences and might miss the weight of some more persistent facts.
Thus, it tends to forget or neglect more ancient data and the broader historical
picture.
This does not mean that we should not be attentive to any signal of change, as in fact we live
in evolutionary systems (see dynamical systems), but the past tend also to be sticky.
Also, in our brain, the short memory (as it is short by definition ;-)) normally vanishes even
faster than the long one, if the mind is subjected to the next new information, thus it has no
time to solidifies a series of immediate perceptions into "representations" (see that word).
A narrow and conflicting mental process
Look, we are on a roll, why look back into Ancient History?
The recency bias seems to contradict the human tendency to be anchored
in the past.
But in fact what the mind often recalls more easily is its anchoring in the recent past, .
This differs from the primacy bias (see that phrase), an anchoring on the first impression
A common example in asset markets is the expectation (see that word) that some assets which
have been
fashionable until now will keep being popular in the near future.
and / or the rotation (see that word) of investor attention might revert.
History has shown that this reversion of price evolutions intervened
rather regularly in the past.
In a society in which information abound, conflicts are common
inside the human memory (see that word):
is that new information tend to
erase or at least to replace previous ones in the mindshare (see cognitive overload),
people might become vaccinated against new information. They tend to resist it and
stay focused on old situations (see anchoring, status quo bias, primacy bias...)
