ACCO 340 Lecture 6: CHAPTER 6
2 Feb 2017
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Document Summary
If a measurement approach is to be useful to investors, increased relevance must outweigh any reduction in reliability. *individuals may have limited attention so they only focus on the bottom line and ignore information in the notes of annual reports (this can create underreacting). They can also be biased in their reaction to the information if, for example, they are conservative (retain excess weigh on prior beliefs). They can also be overconfident with the information they have gathered themselves in that they will underreact to the new information issued (which they did not self-collect). Sometimes, individuals will assign too much weigh on recent information: this is called representativeness. This will lead to overreaction to share price. Self-attribution bias: investors feel that good decision outcomes are due to their abilities and that bad outcomes are not their fault. Motivated reasoning: investors accept information that is consistent with their preferences (e. g. , gn).
