Decision Aid Reliance: A Field Study Involving Professional Buy-Side Financial Analysts

Abstract

Decision aids (DAs) are designed to assist and improve decision-making processes, and they have been incorporated into many professions, such as auditing, law and medicine. Yet, research findings regarding how DAs impact judgments and decisions has been somewhat mixed, often indicating a reluctance of experienced decision-makers to rely on the recommendations of DAs. One of the major criticisms of this line of research is that prior studies examining DA reliance have been conducted in artificial experimental settings using researcher-developed aids; thus, researchers and practitioners know very little about DA reliance in the field. The current study complements and extends prior DA research by examining the DA reliance behavior of professional buy-side financial analysts in a real world environment.

A large mutual fund company provided data on buy-side analysts’ earnings forecasts for four consecutive quarters. As part of the decision process, all of the analysts had a DA available to assist in making earnings forecasts. The results indicate that higher task ability is associated with greater DA reliance, increased performance-contingent incentives are related to decreased DA reliance, and more task complexity is associated with more DA reliance. Also, greater confidence in the DA heightened reliance, and DA confidence interacted with performance-contingent incentives. Finally, increased DA reliance was associated with more accurate earnings forecasts. These results provide valuable theoretical and practical insight into the use of an operational DA by professional decision-makers in a natural work environment.

Keywords: decision aid reliance, financial analysts, forecast accuracy

JEL Classification: M40, M41, D81