Is the recency bias affected by the emotional state?
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2021-07-15
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en
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A well-known behavioral bias in finance is the recency bias. The recency bias is the tendency of people to overweight recent information compared to more distant information which may be equally relevant. The main goal of this research is to investigate whether the degree of the recency bias is mitigated/amplified/unaffected by the emotional state. Furthermore, it is analyzed whether gender, financial knowledge, nationality and age influence the degree of the recency bias. This is investigated by means of an experimental survey. The participants of the experiment are randomly assigned into one of the treatments, either in a happy emotional state or a sad emotional state. Participants are faced with two types of price paths, down-up price paths and up-down price paths, and they differ in positive and negative final returns. Afterwards, participants have to form expectations about the final price and the minimum- and maximum price. This research shows that participants in a sad (happy) emotional state are less (more) prone to the recency bias. Besides, it can be concluded that women (men) are less (more) prone to the recency bias when they face a down-up price path.
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Faculteit der Managementwetenschappen