Wi-Ai has reached a “verdict” on recency bias.
Recency bias is one of many cognitive biases that affect investors and thus can prove to be problematic for financial services providers, fund managers, financial advisers, robo-advisors and more.
But what exactly is it?
Although recency bias is widely discussed within behavioural finance, I’d like to take a brief trip down memory lane and illustrate this with an example from my former life as a barrister.
In a trial, the most impactful remarks should be made in the closing statement – and it’s even better to be the final lawyer to speak. Now, this isn’t just due to a flair for dramatic conclusions, nor is it quite as simple as being the easiest thing for jurors to remember.
It’s because recency bias may cause humans to overvalue the most recently presented data, and therefore juries often place undue importance on the last thing they’ve heard.
To return to the realm of finance, recency bias can be a costly issue for providers and customers. For example, a change in market conditions could see your client’s portfolio drop by 5%. Even though that investment is performing well over its anticipated term, recency bias convinces them that it will keep on dropping and they may encash too hastily.
By helping customers understand and take ownership of their biases, Wi-Ai tools allow financial services providers to achieve more harmonious and profitable business relationships.
All rise!
To discuss whether Wi-Ai can help you and your customers master biases, contact us at [email protected]