BUS 421 Chapter Notes - Chapter 6: Statistical Significance, Loss Aversion, Discounted Cash Flow

• School: Simon Fraser University
• Department: Business Administration
• Course: BUS 421
• Professor: Irene Gordon

Document Summary

Individuals may have limited attention: may not have enough time, inclination, or ability to process all available information, focus on information that is readily available (bottom line, ignore information in notes and elsewhere in the annual report. Individuals are conservative ( : retain excess weight on their prior beliefs. Individuals are overconfident: overestimate the precision of information they collect themselves, implies that they will underreact to new information that is not self-collected. Representativeness: individuals assign too much weight to evidence that is consistent with their impression of the population from which the evidence is drawn, be particularly likely if the evidence is salient ( ), anecdotal ( ), or extreme. Individual takes the evidence of a few years of growth in earnings as representative of a growth firm, ignoring the fact that the earnings will revert to normal in the future. Share price will overact to the reported growth in earnings.