Recency Bias

Recency bias is the tendency to assume that whatever has happened recently is normal, and will keep happening. In personal finance, it shows up when people expect the conditions of the last few years, or the last few decades, to continue indefinitely: low interest rates, rising home prices, steady stock market gains.

Interest rates are a clear example. For roughly a generation, mortgage rates and the federal funds rate sat near historic lows. Many people who came of age in that period treated 3% mortgages as the baseline and saw 7% as an aberration. Historically, it's the other way around. Mortgage rates in the 1970s and early 1980s ran well into the double digits, and rates have risen and fallen many times before. The long stretch of near-zero rates was the result of deliberate central bank policy, not a natural state of the economy.

Austrian economists emphasize that market interest rates coordinate savings and investment over time. When a central bank holds rates artificially low for decades, it distorts that signal and teaches whole generations to plan around conditions that can't last. Recency bias then turns a policy decision into what feels like a law of nature. When rates normalize, people who built their plans on the recent past get caught off guard. Homebuyers who assumed they could refinance later, and retirees who assumed bonds would always pay little and stocks would always climb, are recent examples.

Why It Matters

Financial plans that only work if the recent past repeats are fragile. Zooming out across decades, or centuries, helps you prepare for a range of outcomes instead of one. Building liquid capital you control is one way to stay positioned whether rates rise, fall or stay put.

Hear this discussed in Between The Lies Episode 048. Get the free toolkit at PerfectSpiralCapital.com/podcast.