11 February 2020

Research pick: The recency period - "Are emotions exacerbating the recency bias?: An experimental study"

The notion of “recency bias” is related to hubris. It is the perception that the events and happenings of recent history will persist into the future. It suggests that the status quo will generally be maintained. Unfortunately, it does not take into account the random effects of human behaviour, environmental response, and many other factors that can upset a recent balance. Of course, hubris usually implies that complacency and recency bias will have a negative outcome as the future unfolds, but occasionally good things do happen.

A team writing in the International Journal of Trade and Global Markets, considers the effects of emotions on recency bias in the context of managerial decision making. Felizia Arni Rudiawarni, Made Narsa, and Bambang Tjahjadi of the Faculty of Economics and Business at the Universitas Airlangga in Surabaya, East Java, Indonesia, have carried out an experimental study to investigate the emotional baggage associated with recency bias in international financial markets with a specific focus on emerging markets rather than the established markets of the developed world.

Previous studies have demonstrated the existence of recency bias where people give more weight to the latest information they receive rather than considering all previous information too in their decision making and judgement. The present study looks at how elements of emotion affect recency bias. The team has found that recency bias is so strong and ingrained in our behaviour that emotions do not seem to affect our decisions. However, there is an impact on judgement of the order in which positive and negative information is received and perceived. Fundamentally, people don’t like to hear bad news.

As such, the team has some advice for strategists in the corporate communications department: When a company has mixed information to disseminate, it is essential to disclose the bad news first and then quickly follow up with positive information to avoid the severely punishing effects of recency bias on the company’s share price, for instance.

Rudiawarni, F.A., Made Narsa, I. and Tjahjadi, B. (2020) ‘Are emotions exacerbating the recency bias?: An experimental study‘, Int. J. Trade and Global Markets, Vol. 13, No. 1, pp.61-70.

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