What is Recency Bias – Causes & Examples
Published by at July 17th, 2023 , Revised On September 1, 2023
We often have to make a lot of decisions in our lives. Sometimes we fail to make the right decision due to our cognitive biases. What are those biases that cause us to make wrong decisions? What does recency bias mean? How does it impact our lives and monetary decisions? Let’s understand this term thoroughly in this blog.
What is Recency Bias?
Recency bias is sometimes referred to as the availability heuristic. One can define recency bias as, ‘’ A cognitive bias that makes people give more weight to recent information or occurrences when making decisions or forming views.’’
It happens when people emphasise recent information or experiences more because they believe they are more representative or significant than older occurrences. This bias may cause a disproportionate emphasis on recent events, thereby overshadowing or undervaluing information about historical or long-term patterns.
According to the recency bias definition, we give greater importance or weight to the most recent information or events we have encountered when making judgments or decisions.
What is the Difference Between Primacy and Recency Bias?
The primacy recency bias is opposite to each other. While recency bias refers to the tendency to give more weight to recent information, primacy bias refers to the tendency to give more weight to the initial information or events encountered.
What is Recency Bias Vs Availability Bias?
Two distinct cognitive biases influence judgement and decision-making: availability prejudice and recency bias. An explanation of each follows:
Recency Bias
Recency bias, sometimes referred to as the availability heuristic, is the propensity to give more weight to recent information or occurrences when drawing conclusions or developing opinions.
For instance, if a person quickly comes across several unfavourable news items on a particular subject, they may falsely assume that the problem is more widespread.
Availability Bias
Availability bias is the inclination to base judgements or estimates of the likelihood of events on quickly accessible or easily recalled information.
For example, if someone is asked to estimate the frequency of a particular occurrence, they could overestimate the likelihood of a rare event if that event is more notable or gets more media attention.
How Does Recency Bias Occur?
The following factors help in the occurrence of recency bias:
Overlapping Attention
We naturally direct more of our cognitive resources towards processing and encoding the most recent stimuli or events. This heightened awareness enhances the impact of recent information.
Emotional Impact
Recent experiences frequently have a higher emotional impact than previous ones, and emotionally significant or charged events tend to be remembered more vividly. We may make biased judgements and attach more importance to recent occurrences due to emotionally charged encounters.
What are the Causes of Recency Bias?
Following are some major causes of Recency Bias:
Memory Limitations
The propensity to prioritise recent knowledge over past occurrences is one of the limits of the human memory system. Recent occurrences are easier for us to remember and keep, which increases the importance and accessibility of recent knowledge.
Recent events or information are typically given priority in human memory over older ones. The most recent items encountered are more readily and vividly recalled, according to the recency effect, a well-documented phenomenon in memory studies.
Selective Attention
We frequently give recent stimuli or occurrences more attention and focus, especially if they are thought to be novel or pertinent. As a result of our tendency to give more importance to the information that we have just encountered, this selective attention might result in a skewed sense of reality.
Information Accessibility
In comparison to older or less current knowledge, recent information is more likely to be instantly accessible in our minds. Due to this accessibility, recent occurrences are easier to access while making judgements or conclusions.
More recent information is frequently easier to recall than older or less recent information. Recent occurrences may become more relevant and accessible due to this availability while making judgements or decisions.
Emotional Impact
Recent experiences, especially those with a significant emotional effect, tend to stay in our memories for a long time. Recency bias is exacerbated because emotionally charged events are more likely to be recalled and impact our decision-making.
How to Avoid Recency Bias?
The recency bias psychology can be avoided in the following ways:
Be Mindful of Bias
Recency bias should be acknowledged, and its possible effects on decision-making should be understood. Develop a mindset that is receptive to considering both current and past facts.
Calculate Different Facts
Actively consider various facts, including more historical or less recent data, to get a fuller picture of the issue. When making assessments or decisions, try not to base them exclusively on current facts or occurrences.
Take your Time to Consider
Before deciding, take a moment to consider the available data. Give yourself a chance to step back and think about the bigger picture, earlier trends, and long-term patterns that may be important.
Analyse the Validity of the Information
It is imperative to determine the information’s quality. Think about the data’s credibility, sources, and any biases that may be there.
Utilise Methodical Decision-Making Techniques
Implement well-structured frameworks for decision-making that promote a thorough analysis of all pertinent issues. This can assist in combating the propensity to place undue reliance on current information.
Seek out Multiple Viewpoints
Discuss various points of view and solicit advice from others who may have fresh perspectives. Encourage a collaborative atmosphere where various viewpoints are respected.
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Examples of Recency Bias
The following are some examples of recent bias from our daily life:
Recency Bias Behavioral Finance
Here is an example of recency bias finance to easily understand the recency effect bias. In behavioural finance, recency bias refers to the tendency of investors to give more weight to recent market trends or events when making investment decisions.
For instance, investors may make decisions based solely on recent patterns or performances, disregarding the larger historical context or long-term trends. This bias may cause investors to overreact to short-term market fluctuations and increase portfolio volatility.
Recency Bias Example in the Workplace
What is recency bias in the workplace? Let’s understand it with an example. Supervisors could give undue weight to recent accomplishments or occurrences when analysing employee performance during performance reviews. This bias, which ignores prior contributions and long-term patterns, might result in biased appraisals.
Recency Bias Finance
Recency bias can significantly influence investing choices in the world of finance. For instance, investors may be more influenced by current market conditions or short-term results, causing them to place their money purely following the most recent market trends.
This bias may lead to disregarding fundamental analyses, long-term patterns, and historical data. Investors could race after the hottest stocks or industries without considering their underlying value or associated risks.
Recency Bias in Investing
When investors make judgements purely based on the performance of a specific company or asset class over the most recent few months, this is an example of recency bias in investing.
For instance, investors may have a biased opinion that a stock will continue to perform well in the future if it has experienced a string of significant price gains over the prior few months. As a result, individuals might invest a sizable chunk of their portfolio in that stock without considering other fundamentals or long-term trends.
However, this bias may be harmful if cyclical market causes caused the stock’s recent increases or if there are unrecognised underlying concerns.
Frequently Asked Questions
A cognitive bias gives people more weight to recent information or occurrences when making decisions or forming views.
The accessibility of current information, the shortcoming of human memory, the impact of recent events on emotions, and selective attention to recent inputs are some causes of recency bias.
Privacy bias refers to the tendency to overemphasise private information, while recency bias refers to the tendency to give more weight to recent information or events.
- Take a long-term perspective.
- Seek diverse information sources.
- Consider historical trends and data.
- Practice reflection and critical thinking
- Use systematic decision-making processes.
