Decision Fatigue and Heuristic Analyst Forecasts

46 Pages Posted: 24 Jul 2017 Last revised: 31 Jul 2018

See all articles by David A. Hirshleifer

David A. Hirshleifer

University of California, Irvine - Paul Merage School of Business; NBER

Yaron Levi

University of Southern California - Marshall School of Business

Ben Lourie

University of California, Irvine

Siew Hong Teoh

University of California, Irvine - Accounting Area

Multiple version iconThere are 2 versions of this paper

Date Written: July 19, 2017

Abstract

Psychological evidence indicates that decision quality declines after an extensive session of decision-making, a phenomenon known as decision fatigue. We study whether decision fatigue affects analysts’ judgments. Analysts cover multiple firms and often issue several forecasts in a single day. We find that forecast accuracy declines over the course of a day as the number of forecasts the analyst has already issued increases. Also consistent with decision fatigue, we find that the more forecasts an analyst issues, the higher the likelihood the analyst resorts to more heuristic decisions by herding more closely with the consensus forecast, by self-herding (i.e., reissuing their own previous outstanding forecasts), and by issuing a rounded forecast. Finally, we find that the stock market understands these effects and discounts for analyst decision fatigue.

Keywords: Analysts, Decision Fatigue, Heuristic, Behavioral Finance

JEL Classification: G02, G14, G2

Suggested Citation

Hirshleifer, David A. and Levi, Yaron and Lourie, Ben and Teoh, Siew Hong, Decision Fatigue and Heuristic Analyst Forecasts (July 19, 2017). Available at SSRN: https://ssrn.com/abstract=3005757 or http://dx.doi.org/10.2139/ssrn.3005757

David A. Hirshleifer

University of California, Irvine - Paul Merage School of Business ( email )

Irvine, CA California 92697-3125
United States

HOME PAGE: http://sites.uci.edu/dhirshle/

NBER ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Yaron Levi (Contact Author)

University of Southern California - Marshall School of Business ( email )

Marshall School of Business
Los Angeles, CA 90089
United States

Ben Lourie

University of California, Irvine ( email )

Irvine, CA 92697-3125
United States

Siew Hong Teoh

University of California, Irvine - Accounting Area ( email )

Irvine, CA 92697-3125
United States

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