Discussion of ‘Making Sense of Soft Information: Interpretation Bias and Loan Quality’

Abstract

Campbell, Loumioti, and Wittenberg-Moerman (2018), henceforth CLW, provide evidence on the effect of human cognitive limitations on the processing of soft information in a Credit Union. Their results suggest that cognitive limitations constitute an important barrier to financial markets’ ability to extract soft information. In this discussion, I delineate CLW’s contribution and implications of their results, highlight key features of the empirical analyses that address interpretational difficulties that might confront some readers, and point out some limitations and unanswered questions that appear important to address in future research to obtain a more complete understanding of soft information production in financial markets.

Keywords: soft information; banks; limited attention; cognitive biases; information production

JEL Classification: G21, D03, D12, D19