A financial advisor recommends diversifying a client's portfolio following a period where the client's single large-cap tech stock significantly outperformed the overall market. The client, relying on the recent excellent performance of that single stock, resists diversification, believing 'why fix what isn't broken?' This illustrates which bias most clearly?

Question: A financial advisor recommends diversifying a client's portfolio following a period where the client's single large-cap tech stock significantly outperformed the overall market. The client, relying on the recent excellent performance of that single stock, resists diversification, believing 'why fix what isn't broken?' This illustrates which bias most clearly?

Answer options: ✅ Recency Bias

• Sunk Cost Fallacy
• Endowment Effect
• Herd Mentality

Correct answer: Recency Bias

Explanation: Recency bias causes the client to give undue weight to the recent strong performance of their tech stock, leading them to believe that this performance will continue and resistance to diversification. They are overly influenced by the most recent data point.