Recency bias is a common tendency among investors across age groups. It causes people to ignore historical trends and make hasty decisions based on recent events alone. Recency bias significantly affects your investment decision, which isn't good for your financial goals. Read this article to understand what is recency bias, its impact on your investment decisions and expert advice on how to avoid recency bias.
Before making an investment decision, you would consciously factor in certain essential aspects such as your financial goals, risk profile, and investment horizon. However, there are many psychological and behavioural aspects that tend to affect your investment decisions, which you may not even be aware of!
In fact, there is an entire area of study known as ‘behavioural finance’ that analyses the effects of psychology on how investors behave, what biases they exhibit, and why they make certain investment decisions instead of others. One such behavioural aspect that influences investment decision-making is recency bias.
So what is recency bias?
Recency bias is simply the tendency to rely too much on recent events to make a decision. It is the misconceived belief that recent events ...