Cognitive Bias #2: Recency Bias

In my never-ending quest to find out how the human brain works, today I would like to talk about recency bias.

Recency bias is the tendency to weigh the latest information more heavily than older data. Sort of like this:

recency

And this:

cold

In the world of the stock market, investors often think the market will always look the way it does today, which results in an endless number of unwise decisions.

It’s not surprising why recency bias dominates our decision making. It forms the basis of our habits, which help us in our day-to-day lives. Recent events and trends are easier to remember than events in the distant past or unknown events that will occur in the future.

But, of course, recency bias means we tend to ignore the lessons of history.

This is a problem for people who work in ‘big data’. 90% of the world’s data has been created in the last few years – and that statement has been true pretty much every year for the last 30 years. Every two years, the amount of data in the world has increased by about 10 times. And so recency bias is sort of ‘built in’ to the system – there is too much recent stuff and not as much of the older stuff.

Anyway, we can’t really overcome recency bias – like all cognitive biases, it’s part of being human. But it is important to be aware of it. So the next time your crazy uncle tells you that global warming can’t be real because it’s been cold for 4 days, you can point him to this post.

 

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