In this video, you will learn about a psychological bias known as recency bias and its application in finance.
Chapters:
00:00- Introduction
00:35 – What is recency bias?
01:44 – Example
02:40 – How to overcome recency bias?
04:50 – Conclusion
What is recency bias?
Recency bias is psychological or cognitive because people tend to make decisions based on recent events.
(Explained in detail in the video)
It leads to people frequently making emotional decisions based on recent or short-term events, and they neglect the bigger picture.
The bias stems from how humans would rely on short-term memory to make sense of real-time events and how easy it is for people to believe that recent events influence future outcomes.
(Explained in detail in the video)
Example
The 2000 dotcom bubble was caused by people following the herd mentality and investing in internet companies.
Everyone thought that since the stocks were going up, they would continue to increase. But, unfortunately, everyone fell for the recency bias, and we know what happened in the end.
(Explained in detail in the video)
How to overcome recency bias?
Understand the markets
Have clear financial goals
Build a strong portfolio
Hire a financial advisor
Have a positive attitude
(Explained in detail in the video)
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