Sunday, February 22, 2009

Recency Bias Busted?

Maybe it's different this time.

Recency bias - the cognitive bias that causes people to more vividly remember the most recent example of something - needs to get to work on the psyche of the American consumer.

Yale Professor Robert Shiller writes in the weekend Times:

"According to the Reuters-University of Michigan Survey of Consumers earlier this month, nearly two-thirds of consumers expected that the present downturn would last for five more years."

Given that fact that most U.S. citizens have not lived through a downturn lasting five or more years, the above is surprising. We should be remembering a recent, brief recession. I wonder how different consumer, employer and banker behaviour would be if people really believed in a quick light at the end of the tunnel this time around.

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