Managing Decision Fatigue: Evidence from Analysts’ Earnings Forecasts

Abstract

Prior literature shows decision fatigue reduces analysts’ forecast accuracy. We study whether analysts strategically manage decision fatigue. Firms within an analyst’s research portfolio can differentially affect the analyst’s reputation and career, with larger firms with greater trading volumes and institutional ownership being more important. We find that analysts choose to issue forecasts for more important firms when they are less decision fatigued, i.e., when the number of prior forecasts the analyst has issued in the day is lower. Young analysts, analysts in low-status brokerage houses, and analysts who become decision fatigued more easily manage fatigue more, and analysts experience more favorable career outcomes after strategically managing fatigue. Finally, fatigued analysts differentiate between more important and other firms in herding and self-herding (i.e., reissuing the analyst’s own previous forecast).

Keywords: fatigue management, decision fatigue, analysts’ earnings forecasts

JEL Classification: G24; G41