Avoiding Behavioral Finance Biases What is the Recency Bias Definition trimmed

Why did the whole world stumble during the pandemic preparation part of the reason is a cognitive bias called the recency effect hi i’m graeme newell and i use the latest brain science insights to show you how to make smarter money decisions my speeches and webinars teach how to recognize the signs that an impulsive decision might be likely click subscribe and the

Bell below to see more of my videos the recency effect is our very flawed human brain’s tendency to believe that current events are more important than past or future events a few years back at the height of the ebola virus researchers found strong support for pandemic preparation but after that imminent threat passed most people changed their minds they believed

New threats were now more urgent and pandemic preparation was pushed out of the news cycle the recency effect causes most all of us to suffer a kind of amnesia but our fickle memory isn’t a mistake it’s a smart survival tactic that has really paid off in the past back in caveman times mother nature figured out that focusing attention on the cheetah that’s trying to

Eat us right now is a better survival tactic than focusing on one that might eat us tomorrow you’ve probably experienced this yourself during a crisis a lot of people report amazing single-minded clarity on what has to be done to get out of danger hyper focus on right now helped assure the survival of the human race but unfortunately it also tends to make most of

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Us really bad planners and predictors which sports team will win the championship in the coming season most of us tend to pick last year’s winner again despite the fact repeats rarely happen when does the recency effect show up most often when we’re under stress stress triggers our brain to go into danger mode our brain jettisons all that non-essential information

About the past and the future and the recency effect has a big impact on the world of finance we have a tendency to think that how it is now is how it will be in the future this causes us to hesitate when markets are down when great bargains are everywhere the memory of our loss is still too painful this makes us hesitant to try again too often we wait until we’re

Feeling better to get back in the game this means we often miss our best chance when markets are rising recency bias tricks us into believing they’ll keep rising we get overly optimistic and more comfortable with risk this often happens at the worst possible moment just as markets are about to become overvalued the recency effect keeps us on this roller coaster

Hesitating when markets are down and when markets are up taking foolish risks so how can you fight the recency effect here are three tactics number one constantly remind yourself of the long game before you check out your portfolio take a gander at the dao 100 year history remind yourself that on average crashes come and go every nine years number two stop checking

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Your balances so often you’re needlessly tempting yourself to make impetuous moves check once a month or even better once a quarter and number three fully flesh out the downside risk carefully calculate a list of all the potential bad consequences of a move figure out the taxes and the transaction fees research shows that most of us hate paying taxes more than we hate down markets

Transcribed from video
Avoiding Behavioral Finance Biases What is the Recency Bias Definition trimmed By Mike LeGassick