Recency Bias
Why do recent events feel more important than those in the past, even when they may not be?
It is common for expectations to shift after a noticeable market move. A strong rally can begin to feel like the start of something larger, while a sharp decline can make further losses seem more likely. The most recent experience starts to carry more weight, shaping how the future is imagined. What has just happened begins to feel like a guide to what will happen next.
This is where recency bias begins to influence behaviour. Rather than considering information across a broader timeframe, the mind tends to give disproportionate weight to recent events. The latest data, the most recent price movement, or the newest narrative becomes the anchor for expectation. Earlier information fades in importance, even if it provides a more balanced view.
This tendency has been studied in psychology and behavioural finance, including work by Amos Tversky and Daniel Kahneman, who explored how people rely on easily recalled information when making judgements. Recent events are often more vivid and easier to remember, which leads them to be overweighted in decision-making. The judgement feels informed, but it is influenced by what is most immediate rather than what is most representative.
In markets, this can be seen in the way trends are extrapolated. A rising market can create expectations of continued gains, while a falling market can lead to assumptions of further decline. The recent past becomes a reference point for the future, even when conditions may be changing.
What makes this difficult to recognise is how intuitive it feels. Using recent information to guide decisions is often practical. The challenge is that it can create a narrow view, where short-term movements are mistaken for longer-term direction.
You may notice this in yourself when recent outcomes begin to shape your expectations more strongly than longer-term patterns, or when it becomes difficult to imagine a different scenario from what has just occurred. There can also be a tendency to adjust decisions based on recent experience, even when the broader context suggests a different approach.
Recency bias does not change the future, but it can change our expectations of it.