Behaviour
Recency bias
Giving too much weight to what happened recently when forecasting what happens next.
How it works
After a strong run, people extrapolate strength; after a crash, they extrapolate decline. Both feel like analysis and are mostly pattern-matching on the last few months.
It is the main driver of performance-chasing: buying what has done well is buying what is most likely to be expensive.
Related terms
- Fear of missing outBuying because something is rising and others are profiting, rather than because of any analysis.
- Mean reversionThe tendency of extreme values — margins, multiples, returns — to drift back towards long-run averages.
- Behaviour gapThe difference between what a fund returned and what its investors actually earned in it.
- HerdingFollowing what others are doing rather than reaching your own conclusion.
More in Behaviour
Educational reference only. Nothing here is investment advice or a recommendation to buy or sell anything, and tax treatment depends on your own circumstances and the country you are in.