Decision fatigue and heuristic analyst forecasts

Abstract

Psychological evidence indicates that decision quality declines after an extensive session of decision-making, a phenomenon known as decision fatigue. We study whether decision fatigue affects analysts judgments. Analysts cover multiple firms and often issue several forecasts in a single day. We find that forecast accuracy declines over the course of a day as the number of forecasts the analyst has already issued increases. Also consistent with decision fatigue, we find that the more forecasts an analyst issues, the higher the likelihood the analyst resorts to more heuristic decisions by herding more closely with the consensus forecast, by self-herding (i.e., reissuing their own previous outstanding forecasts), and by issuing a rounded forecast. Finally, we find that the stock market understands these effects and discounts for analyst decision fatigue.

Strong Effort Manipulations Reduce Response Caution: A Preregistered Reinvention of the Ego-Depletion Paradigm

“…Although the field appears to have hit a dead end, it might be too soon to jettison ego depletion because researchers have relied mainly on one paradigm (i.e., between-subjects laboratory sequential tasks) and has yet to fully examine other approaches. For example, studies using archival data sets, field data, or experience sampling suggest that depletion or carryover fatigue effects may be apparent in people’s everyday lives (e.g., Dai, Milkman, Hofmann, & Staats, 2015; Hirshleifer, Levi, Lourie, & Teoh, 2019). Although ecologically valid, these studies often cannot control for real-world confounds.…”

The trend is an analyst's friend: Analyst recommendations and market technicals

“…Investors have been shown to be susceptible to their use of representative heuristics causing them to bet on the persistence of recent data trends, especially when ancillary signals confirm these trends (Andreassen, 1987; De Bondt, 1993; Gilovich, Vallone, & Tversky, 1985; Tversky & Kahneman, 1974). Regarding analysts in particular, the constant process of making decisions has caused many analysts to suffer from decision fatigue (Hirshleifer, Levi, Lourie, & Teoh, 2019). In this fatigued state, analysts turn to simple heuristics that require minimal mental capacity, of which market technicals are included.…”

Analisis Faktor Faktor Determinan Dan Perilaku Herding Di Pasar Saham

“…Selain itu, efek dari sentimen pasar pada perkumpulan analis terutama terjadi untuk rekomendasi pada perusahaan yang sulit dinilai, perusahaan besar, serta perusahaan dengan kepemilikan institusional yang tinggi, rasio book-to-market yang tinggi dan cakupan yang rendah oleh analis (M. T. Chiang & Lin, 2019). Semakin banyak perkiraan masalah analis, semakin tinggi kemungkinan analis mengambil keputusan yang lebih heuristik dengan melakukan herding lebih dekat dengan ramalan consensus (Hirshleifer, Levi, Lourie, & Teoh, 2019). Temuan kami menunjukkan bahwa setiap industri memiliki, pada tingkat tertentu, perilaku herding di antara analis (Zhao, Zhang, Feng, & Zhang, 2014).…”

“…Keenam, yaitu perilaku analis yang mengalami kelelahan dalam proses analisis saham. Penelitian (Hirshleifer et al, 2019) menemukan bahwa semakin banyak perkiraan masalah analis, semakin tinggi kemungkinan analis mengambil keputusan yang lebih heuristik dengan melakukan herding lebih dekat kepada ramalan konsensus.…”