Psychology — Noozify Original — March 1, 2026

Recency Bias and Decision Making

By Adam Canissario

When faced with difficult decisions, our minds take shortcuts, especially during uncertainties and periods of volatility. Human minds tend to analyze situations and predict the future based on certain biases. Recency Bias is a cognitive bias where an individual overemphasizes and has a higher preference for recent events and experiences. Simply put, it tends to favor recent events more than earlier ones.

We are naturally wired to remember what happened most recently. Such events are the freshest in our memories. They may not be reliable or relevant, but they are easier to remember and discern than events in the distant past or unknown outcomes in the future. We often fall prey to recency bias because of our incapacity to predict the future objectively.

The wiring is old news. Hermann Ebbinghaus noticed it in the 1880s, and Bennet Murdock mapped it in a 1962 Journal of Experimental Psychology paper in which subjects recalling word lists remembered the last eight or so far better than the middle, the recency tail of the serial-position effect. Amos Tversky and Daniel Kahneman linked it to judgment in Cognitive Psychology in 1973 and again in Science in 1974, describing the availability heuristic, the habit of judging how common or likely something is by how easily examples come to mind. Recent events come to mind easily, so they feel common and likely.

The bias manifests itself in various ways and is sometimes associated with other cognitive biases. A relatable example of recency bias occurs when a person is asked to list the ten best movies they have ever watched. A person is more likely to recall the movies they watched in the recent one to two years than movies they watched five to ten years back.

Sports fans know a version of it. In 1985 Thomas Gilovich, Robert Vallone and Tversky argued in Cognitive Psychology that the hot hand in basketball was a misreading of chance. In 2018 Joshua Miller and Adam Sanjurjo showed in Econometrica that the original method carried a subtle statistical bias and that correcting it reversed the conclusion. Either way, fans and bettors weight the last three shots, the noisier signal, far more than the last three seasons.

Recency bias is common and the most difficult cognitive bias to avoid when investing. It causes investors to become irrational in their decision-making process, resulting in unsound and risky investments. Recency bias impacts the investment decision-making process in a variety of ways, like preventing investors from accurately analyzing economic cycles in the market. An investor may refrain from buying because of a recent period of declining economic performance countrywide. They become pessimistic about market recovery following a recession. Further, an investor will hold on to an investment in a bull market and ignore that the cycle may not persist, disregarding the idea that stock markets experience ups and downs. Because of bias, investors miss the opportunity to buy at discounted rates and exit the market to book a profit.

The evidence that investors chase what just happened is solid. Ulrike Malmendier and Stefan Nagel found that recent return experiences carried more weight than older ones in how much stock people held. After 2008, Gallup found that stock ownership averaged 62 percent from 2001 to 2007, fell to 52 percent in 2013 and 2016, and did not climb back above 60 percent until 2023, so many Americans missed much of a long rally. The reverse came in 2020, when a FINRA Foundation and NORC survey found the new investors were younger and less affluent, drawn by cheap stocks after the dip, and answered 1.4 of five basic investment questions correctly. Dalbar found the average equity investor earned 16.54 percent in 2024 against 25.02 percent for the S&P 500, and Morningstar puts the long-run cost at about 1.1 percentage points a year, heaviest in 2020.

Basing decisions on recent occurrences can get investors into deep trouble. Still, recency bias causes investors to employ this strategy. As a result, there has been a genuine concern among investors giving rise to a meaningful discussion on how to counteract this extreme cognitive bias.

Markets are just the most measurable arena. A 1989 Journal of Applied Psychology experiment by Dirk Steiner and Jeffrey Rain found raters' overall scores pulled toward the work performance they saw last, which is why a strong March and a weak November can read as a weak year, and why the last candidate interviewed gets a look the first did not. Insurance runs the other way. Economist Justin Gallagher found that flood insurance take-up spikes immediately after a flood and then decays back toward its old level within a few years, which he attributes to forgetting. The memory fades and the premiums stop with it.

Cognitive biases can lead to the deviation from a well-crafted plan, resulting in adverse and irreversible long-term consequences. The short-term moves caused by recency bias can gradually affect long-term outcomes, making it more difficult to achieve a previously declared goal.

Since recency bias comes from within, the best way to overcome it is by sticking to a plan and working with a professional. For instance, suppose you are an investor and unconsciously prefer recent trends when making important investment decisions. In this case, it is best to work with an independent and experienced financial advisor. They will help you have a broader view of the market, analyze past trends objectively, consider market forces, and evaluate risks comprehensively to help you make sound investment decisions.

The research also points to countermeasures anyone can apply. Ask for the base rate, the long-run frequency of an outcome, before the vivid case; Tversky and Kahneman called such errors "systematic and predictable," and the predictable can be planned for. Pre-commit in writing, in calm conditions, to what you will do when the market falls 20 percent or a new hire's first month disappoints. Keep a checklist that logs examples from every month and compares the current drawdown with the last five. And lengthen the look-back window. Shlomo Benartzi and Richard Thaler argued in the Quarterly Journal of Economics in 1995 that the outsized premium stocks pay over bonds fits investors who evaluate their portfolios about once a year, a habit they named myopic loss aversion. A 20-year chart shrinks the last quarter to its actual size.

Most of the time, we unknowingly fall victim to the harsh implications of cognitive bias. Therefore, acknowledging the bias is a necessary step toward making suitable and more effective decisions. Part of the process involves acquiring expertise to analyze opportunities objectively, and gaining the capacity to understand environmental conditions more accurately.