The Psychology of Bad Investing: 7 Cognitive Biases That Cost You Money

6. Recency Bias: The Tyranny of the Recent Past

Recency bias is the tendency to give undue weight to the most recent events when evaluating future possibilities. Investors influenced by recency bias might overestimate the likelihood of trends continuing simply because they have been recent, such as assuming a bull market will persist indefinitely. This can lead to poor investment timing and misallocation of resources. To combat recency bias, investors should adopt a long-term perspective and consider historical data alongside recent trends. Regularly reviewing and adjusting investment strategies to account for a broader range of scenarios can help maintain a balanced approach.