One great month doesn’t make a trend. One bad quarter doesn’t mean the model is broken.

A business owner once said:

Another admitted:

This is recency bias in action: the behavioural tendency to overweight the most recent experience and let it distort long-term judgment.

It’s powerful. It’s subtle. And it’s costly—especially in financial decision-making where patterns matter more than moments.

Let’s unpack how recency bias works, how it shows up in small business finance, and how to anchor decisions more rationally.

What Is Recency Bias?

Recency bias is the human tendency to:

• Give disproportionate importance to recent events

• Believe that “what just happened” will keep happening

• React emotionally to short-term outcomes—even in long-term systems

It shows up in how you:

• Allocate budgets

• Plan cash reserves

• Take or delay investment risks

• Treat team performance or product bets

You’re not seeing data—you’re reacting to memory.

Common Ways It Skews SMB Financial Decisions

1. Overconfidence After a Win

• Revenue spikes → you over-hire or over-stock

• One client praises your offer → you assume the market is fully validated

• A campaign works → you scale spend without retesting

You confuse an event with a trend.

2. Overcorrection After a Loss

• A vendor overcharges → you freeze all new supplier onboarding

• One bad debt → you stop giving credit terms entirely

• One pricing pushback → you lower rates across the board

You confuse an outlier with a rule.

3. Shortening the Feedback Window

• Weekly cash movement affects multi-month strategy

• One slow week feels like a downturn

• You update budgets monthly instead of quarterly—even when the business doesn’t need it

You zoom in too much—and lose the real picture.

Why Recency Bias Feels Rational (But Isn’t)

• It’s emotionally comforting to assume the recent past predicts the future

• Our brain seeks narrative and control, especially in uncertain environments

• “Last time this worked” or “last time this failed” becomes a shortcut for complex analysis

But most financial systems don’t follow emotion.

They follow cycles, context, and compounding.

How to Break the Pattern

1. Use Data, Not Memory

• Compare 6-month rolling revenue, not last week’s sales

• Use 3-period averages when tracking campaign ROI

• Create simple trend graphs instead of anecdotal reflections

2. Set Decisions to Time Frames, Not Feelings

• “Hiring decisions reviewed quarterly, not monthly”

• “Cash reserve policy based on 3-month rolling net burn”

• “Marketing scale-up only after 2 consistent cycles of results”

Lock the review window before the emotion kicks in.

3. Build a Bias Check Into Reviews

Add this to every financial review:

Simple, powerful. It resets thinking.

4. Assign a Devil’s Advocate

Give one team member the role of challenging any decision made after a big win or loss. Ask:

• What are we assuming here?

• Is this repeatable or one-off?

• Have we cross-checked it with longer-term data?

TL;DR – Too Long; Didn’t Read

• Recency bias makes you overweight recent wins or losses in financial decisions.

• It leads to premature scaling, overcorrections, and reactive strategy shifts.

• Break it by using rolling averages, fixed review windows, and structured reviews.

• Ask: “Is this a trend or just the last headline I remember?”

Momentum is great. But it must be earned repeatedly.

Fear is real. But it must be contextualised.

Because financial wisdom doesn’t come from what happened last.

It comes from what keeps happening—and how you respond with consistency.