Recency (Availability) Bias Definition

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What Is the Recency (Availability) Bias?

In behavioral economics, the recency bias (also known as the availability bias) is the tendency for people to overweight new information or events without considering the objective probabilities of those events over the long run.

Availability bias matters for the financial markets, as memory of recent market news or events can lead investors to irrationally believe that a similar event is more likely to occur again than its objective probability. As a result, investors may make decisions to sell into bear markets, or buy into bubbles, since crashes and bubbles can be salient in the minds of individuals as they are occurring.

Key Takeaways

  • The recency, or availability, bias is a cognitive error identified in behavioral economics whereby people incorrectly believe that recent events will occur soon again.
  • This tendency is irrational, as it obscures the true or objective probabilities of events…

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