According to the good folks at the National Bureau of Economic Research, www.nber.org Decision Fatigue Bias suggests that both, “Financial analysts and stock market investors alike are subject to behavioral biases. Objective analyst forecasts can potentially help correct investor misperceptions. On the other hand, biased forecasts can reinforce or incite investor misperceptions. Furthermore, data on analyst behavior provide a rich window of insight into the nature of psychological bias among an important and incentivized group of professionals, since ex post information is available about the accuracy of analyst forecasts under different conditions. Analyst behavior also provides insights into the sources of stock market mispricing. As a possible example of analyst psychological bias, consider decision fatigue, defined as the tendency for decision quality to decline after an extensive session of decision-making. Whether decision fatigue exists has been a topic of controversy as part of the greater replication crisis in experimental psychology.”
We found the research fascinating to say the least and with sound reason and logic the authors tie Decision Fatigue Bias to a previous behavioral pitfall we covered several months ago referred to as “Limited Attention Span Bias.” In their research they state the following; “Limited investor attention also offers a possible explanation for a wide array of anomalies based on cross-firm return predictability.” Due to our human nature, this attention span deficit spills over to even the most ardent of researchers.
The article goes on to state; “Analysts cover multiple firms and need to periodically revise forecasts. They often issue several forecasts in a single day, which requires analysis and judgment. Consistent with decision fatigue, forecast accuracy declines over the course of a day as the number of forecasts the analyst has already issued increases (controlling for time). Furthermore, the more forecasts an analyst issues, the higher the probability that the analyst forecasts more heuristically by herding on the consensus forecast, self-herding (reissuing the analyst’s own previous outstanding forecast), and forecasting a round number.”
Wow, talk about packing a punch with a deep web of biases strung together, we applaud the authors for their courage. Could we be bold enough to suggest in summary that this very detailed research paper suggests the following. As human beings we all have limited capabilities in the amount of attention we can assign to any given task. When we take on too much, we succumb to Decision Fatigue Bias as forecast accuracy declines over the course of a given day as obviously the number of decisions we need to make mount. As fatigue sets in, we default to Herding and simply following the crowd as exhaustion overtakes us.
This may just describe why the Business Channels are wrought with similar chatter on every subject with only the brave willing to stand out from the crowd. Only true objectivity via Clarity can slay the evil dragon of uncertainty, fear and yes, even exhaustion!!
https://www.nber.org/reporter-2020-02/behavioral-biases-analysts-and-investors
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