Recency Effect vs. Primacy Effect — Memory Keeps the Beginning and the End
After reading a long newsletter, aren't the first and last sentences vivid while the middle is hazy? Our memory is uniquely strong at the beginning and the end.
The Serial-Position Effect: Primacy and Recency
When you encounter several pieces of information in order, you tend to remember those at the beginning and the end better than those in the middle. This is called the serial-position effect.
Remembering the first ones well is the primacy effect, and remembering the last ones well is the recency effect. The primacy effect is explained by more processing time being allocated to the first information, so it is well stored in long-term memory; the recency effect is explained by the last information remaining vividly in short-term memory.
Traps in Investment Judgment
This memory bias makes the 'order' of information distort judgment.
Recency effect: The last news you just saw, the last quarter's earnings, the most recent return come across as excessively large and overwrite the long-term trend. Right after going through a down market, that impression lingers, making it easy to overrate risk.
Primacy effect: The first impression formed about a stock ('a good company') doesn't change easily even when bad information appears later. The first impression acts like an anchor, shaving off the weight of new information.
The recency effect connects to 'recency bias,' but here the focus is specifically on the problem of the 'order' in which information is presented and 'memory.' The same fact is remembered differently depending on when you encountered it.
How to Strike a Balance
The key is to see 'the whole picture that isn't swayed by order.'
Instead of fragmentary recent news or a first impression, laying out a sufficiently long period of data at a glance lets you correct memory skewed toward the beginning and the end. For example, seeing decades of rises, falls, and recoveries on one screen puts the weight of the crash news you just saw back in its place.
When reviewing important information, re-reading it in a changed order, or checking the raw data rather than a summary, also helps. Treating both the first impression and the last impression as merely 'one data point each' is your line of defense.
Preguntas frecuentes
Q. Are the primacy effect and anchoring the same thing?
Close but different. The primacy effect is a memory phenomenon where 'information encountered first stays in memory better,' while anchoring is a judgment phenomenon where 'a number or standard presented first becomes the reference point for subsequent judgments.' Both show the power of 'the first,' and in real situations they operate together to let a first impression dominate judgment for a long time.
Q. How is this effect used in presentations and reports?
The presenter places the most important messages at the very front and the very back to make them memorable. Conversely, from the perspective of the investor receiving the information, it helps balanced judgment to be conscious of what the presenter placed at the front and back, and to deliberately seek out the 'risk information buried in the middle.'
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