Recency Bias

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Definition

The tendency to think that what’s been happening lately will keep happening. One of a group of Behavioral Financial Biases that can cloud investors’ judgment. Recency Bias can cause investors to stay in stocks or other instruments because they have been performing well, despite warning signs like historical or relative high valuation. The bias can conversely keep investors from buying when stock prices are low, as in early 2009, because for months stocks had been falling and under Recency Bias one woud expect that to continue.

Below we see relatively high stock prices, and a comforting pattern of prices rising steadily, and a very low percentage of investors with a bearish view of the market.

^SPX Chart

^SPX data by YCharts


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