The recency effect!

"The recency effect is also reinforced by the fact that people tend to rely on their own experiences in preference to statistics or the experiences of others. In a wonderfully titled paper ‘The tree of experience in the forest of information’, Simonsohn et al.(2004) show through a series of experiments that direct experience is frequently much more heavily weighted than general experience, even if the information is equally relevant and objective.

Simonsohn et al. hypothesize that one reason for the over weighting of direct experience “is the impact of emotion.... [D]irectly experienced information triggers emotional reactions which vicarious information doesn’t”.

They continue, “If people use their direct experience to assess the likelihood of events, they are likely to overweight the importance of unlikely events that have occurred to them, and to underestimate the importance of those that have not.” In fact, in one of their experiments, Simonsohn et al. find that personal experience is weighted twice as heavily as vicarious experience! All of this means that investors’ experience will be a major determinant of their perception of reality."

The recency effect!