Why recency bias matters
It encourages performance chasing, abandonment after short weakness, and assumptions that the current regime will persist.
How it is applied
Investors use long samples, multiple regimes, rolling results, valuation, base rates, and predetermined rebalance rules.
Portfolio example
After several strong equity years, an investor raises expected return and reduces perceived risk just before conditions reverse.
How to interpret it
Recent information can be relevant, but its weight should reflect persistence and evidence.
Limitations and common misconceptions
Long histories may include obsolete regimes, so combating recency does not mean ignoring structural change.
Sources and further reading
- The Behavioral Biases of IndividualsCFA Institute
- Behavioral Patterns of U.S. InvestorsU.S. Securities and Exchange Commission