Narrative expectations in financial forecasting
نویسندگان
چکیده
How do people form expectations about the future? We use amateur and expert investors' financial asset prices to study this question. Three experiments contrast rational assumption from neoclassical economics (investors forecast according theory) against two psychological theories of expectation formation—behaviorally informed understand empirical market anomalies expect these occur) narrative thinking predict future prices). Whereas theory maintains that past public information cannot be used prices, participants company performance revealed before a base price quotation project trends after (Experiment 1), contradicting expectations. Importantly, projections were stronger when concerned predictions company's rather than actual data its performance, suggesting not only rely on financially irrelevant (but narratively relevant) for making but erroneously impose temporal order information. These biased had downstream consequences allocation choices 2), driven in part by affective reactions news 3). There some mild effects expertise, overall appear consistent across all levels expertise studied, including professional analysts. conclude discussing prospects choice provide new microfoundational insights economic behavior.
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ژورنال
عنوان ژورنال: Journal of Behavioral Decision Making
سال: 2021
ISSN: ['0894-3257', '1099-0771']
DOI: https://doi.org/10.1002/bdm.2245