Behavioral finance FAQ / Glossary (Recency)

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This is a separate page of the R section of the Glossary


Dates of related message(s) in the
Behavioral-Finance group (*):

Year/month, d: developed / discussed,
i: incidental

Recency bias, effect

See memory, primacy,

Was there a day before yesterday?


The recency bias is rather widespread phenomenon by which our mind tends

togive 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 tends 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.

When 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 temporary anchoring
in the most recent past

When a new situation arises and an explanation is needed, we often interpret
it in the light or a recent event.

This is the main factor of availability heuristic (see heuristic)

This differs from the primacy bias (see that phrase), an anchoring on the
first, not the mostt recent, 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.

This is neglecting the "boomerang" risk by which

the business cycles and / or the rotation (see that
word) of
the investor attention might revert (*).

(*) As History has shown, this reversion of price evolutions intervened
      rather regularly in the past (either regression to the mean or ...    
      reversion to the other extreme
, see that phrase)

Also, in a society in which information abound, conflicts are common
inside the human memory
(see that word):

One tendency, which affect our short memory is that
   new information
tend to erase or at least to replace previous

ones in the mindshare (see cognitive overload),

Another one, that is linked to long memory is
   that, on the
contrary, people might become vaccinated against

newinformation. They tend to resist it and stay focused on old
situations (see anchoring, status quo bias, primacy bias...)

(*) To find those messages: reach that BF group and, once there,
      1) click "messages", 2) enter your query in "search archives".

Members of the BF Group, please
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This page last update: 23/09/15   

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