Two related concepts, anchoring and recency bias, can trick your brain into making poor risk management decisions. Wikipedia describes recency bias as “a cognitive bias that favors recent events over historical ones,” and defines anchoring as “a cognitive bias whereby an individuals decisions are influenced by a particular reference point or ‘anchor’.”
Trial #2 of your Newsletter. Very good again Stephanie. My sense is financial risk is captured very well in the writing of Michael Lewis and his accessibility is second to none.
Ray Dalio, in his book “Principles for Dealing with the Changing World Order” talks about trying to get past our bias associated with assuming things will always happen the way we’ve experienced them in our lifetimes, instead of learning from the past beyond our own lifetime, and even beyond the lifetime of our current civilization. Just because something hasn’t happened in my lifetime, doesn’t mean it hasn’t happened many times in past history. It’s an interesting take on the recency bias.
Trial #2 of your Newsletter. Very good again Stephanie. My sense is financial risk is captured very well in the writing of Michael Lewis and his accessibility is second to none.
Ray Dalio, in his book “Principles for Dealing with the Changing World Order” talks about trying to get past our bias associated with assuming things will always happen the way we’ve experienced them in our lifetimes, instead of learning from the past beyond our own lifetime, and even beyond the lifetime of our current civilization. Just because something hasn’t happened in my lifetime, doesn’t mean it hasn’t happened many times in past history. It’s an interesting take on the recency bias.
Thanks for the reminders about the biases, Stephanie, and for the hat tip. :)