We get more attention to what we hear, observe, and talk about first, and that work as a belief creator among us. This bias is known as the primacy effect. That’s defined by the well-known saying – “first impression is the last impression”.
The primacy effect is not always the culprit; the contrasting recency effect matters as well. The more recent the information, the better we remember it. This occurs because our short-term memory file drawer, as it were, contains very little extra space. When a new piece of information gets filed, an older piece of information is discarded to make room.
Investment – First and last both Impression matters so that when we read annual reports, many companies make it attractive to create a first impression. Later on, they try to hide the truth between the first and last impressions. We have to be very careful while we read any information rather than get biased with primacy or recency effects.
The halo effect occurs when a single aspect dazzles us and affects how we see the full picture. When we like something about some person then we start liking many things about them, also things which we may not observe about them. This is known as the halo effect.
When we meet someone and like him/her then slowly our emotions make more sense of liking various things of them which may or may not be observed by us. Or that may not be real. Reversely if we dislike the person or something at first impression then later on we tend to dislike more things about the same though it may be good.
The parable of the blind men and an elephant originated in the ancient Indian subcontinent, from where it has been widely diffused. It is a story of a group of blind men who have never come across an elephant before and who learn and imagine what the elephant is like by touching it. Each blind man feels a different part of the elephant’s body, but only one part, such as the side or the tusk. They then describe the elephant based on their limited experience and their descriptions of the elephant are different from each other. – Wikipedia
Investment – We see single elements to create an entire picture. Such has happened during the IT bubble and infra bubble. When prices of IT companies started rising, people think that IT is a new era, the world will be going to change and IT stocks remains shining forever. Same with infra, shortage of land, affordable housing, nuclear family, etc. But when the bubble got burst people started with different stories.
We should try to study all aspects in detail so that we do not make such mistakes of using one attribute as an entire story. If we have focused on one attribute and ignored others then we will be at a mercy of luck which might result in huge regret in the future.
Our first impression has a greater impact on our future perception of the same things. We should write down things which have an impression on our minds. And help system 2 to take charge. This makes us able to make a wise decision rather than fall into the first impression trap.
When we start with the company study and we found some liking features, later on, we like many things about a particular company. That may or may not be true. We have to be suspicious from starting and giving control to system 2. We can write down things that are making us biased and work on collecting disconfirming evidence. We should have worked on the scorecard method and given scores to every fact about the company. So that the end score can drive our decision rather than the halo effect.