Good Morning,
Hope you are having a good time. Today, We are talking about Recency ⏳.
What is it?
It is our tendency to weigh in the newest & latest information about something more heavily than the older data.
Example:-
In Stock Market, Investors and Traders often think that the market will always look the way it looks today and make unwise decisions which can affect their portfolio, down the line.
If you are active on twitter, you might’ve seen this. This explains Recency Bias.
Where does it occur?
Stock Market is the best place where you can notice this phenomenon. Important events, major conferences and annoucements, festivals can cause spike in stock prices.
Similarly, Another example is when the “Hype” of new iPhone builds around September month, usually the launch period of it.
Why do I need to know?
Major news can make you biased. Trending Hashtags on Twitter can make you biased. You should observe whenever things like this happen. Figure out if they are worth in your longer term goal or not. Looking back at history is good way to get an idea before taking a big decision.
Takeaways:-
Don’t always fall for the “Hype”.
Weigh Long-term over Short-term.
Keep check of sources if they are legit or not.
References & Studies:-
https://en.wikipedia.org/wiki/Recency_bias
https://www.babypips.com/trading/forex-recency-bias-20190821
https://www.personalcapital.com/blog/investing-markets/how-to-avoid-recency-bias/