, Columnist
Confusing What Just Happened With What Happens Next
Investors give too much weight to recent events.
Maybe these will help.
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What do gold prices, a stock-market plunge and a credit crisis have in common? The way investors tend to see them are examples of the "recency effect."
A brief description first: In human psychology, people who are asked to recall items on a long list tend to have a sharper memory of the items toward the end. This is a function of finite memory capacity -- you can't remember everything, so you recall the more recent items.