How Does the Concept of “Recency Bias” Affect Decisions after a Margin Call?

Recency bias is the psychological tendency to overweight recent events. After a margin call, the recent, sharp price drop is the most salient event.

This bias can lead the investor to irrationally panic sell, fearing the recent drop will continue indefinitely, or conversely, to irrationally double down, believing a bounce is imminent because the drop was so extreme.