recency bias
As the Premier League season enters the final stages with less than 10 games to go, awards nominations will begin to enter the minds of players, managers and journalists alike.
Voting for the PFA Men's Players' Player of the Year is done between now and the middle of May to determine who the peer group believe to be the best. Each player has two votes but there is a slight wrinkle: there is no set criteria. The votes are completely subjective. In a sports world becoming more and more dominated by data and statistics, it seems somewhat dated to rely soley on opinion.
In a report by The Athletic from 2021, Martin Keown (who has been the Arsenal PFA delegate) recalls having to even "do well" to get his team-mates to complete their voting forms. He ended up writing his own shortlist and presenting it to the players to simplify the exercise!
There is also an issue of timing. The votes tend to be cast at the end of the season (or towards the end), which means that there is an awful lot of "recency bias" in the result.
Recency bias is a cognitive bias where people tend to give more weight to recent events or information over older data. It tends to lead people to misjudge longer term trends in favour of the most recent data point.
In May 2015, Harvard Sports Analysis conducted research that looked at the NBA's Most Valuable Player (MVP) award in light of recency bias. The researchers measured the individual and team statistics over distinct time periods and found that "performance towards the end of the season has a strong effect, with points and turnovers per game in the final period of the season highly associated with the positioning in the MVP race."
How do we see recency bias in the investing world?
1. The latest results of a company can be extrapolated forward. This happens when results are positive or negative.
2. Recent fund manager performance.
3. The most recent economic data point (inflation, interest rate trajectory, PMI data, etc.).
💡 Understanding that this bias exists and when it can be at play is a good start to help mitigate when making better decisions. Ask yourself, "am I reacting to the latest data point?" or "what does the longer term trend show?"
Remember, when we are asking people to vote, whether it is premier league footballers, actors or basketball players, there will always be subjectivity but when it comes to understanding how this bias affects more important decisions around your portfolio, be prepared to question the recency of your information.
