Nudging Towards Better Earnings Forecasts

59 Pages Posted: 7 Jun 2023 Last revised: 1 Mar 2024

See all articles by Lawrence D. Brown

Lawrence D. Brown

Temple University - Department of Accounting

Joshua Khavis

University at Buffalo (SUNY) - School of Management

Han-Up Park

University of Saskatchewan - Edwards School of Business

Date Written: February 29, 2024

Abstract

We examine whether “nudging” forecasters to reduce their herding behavior without altering their economic incentives or limiting their choices improves the consensus earnings forecast. Specifically, we examine how introducing a social-norm nudge that promotes exerting one’s best forecasting effort on the Estimize.com forecasting platform impacts the quality of its consensus earnings forecast. Consistent with behavioral economic theory’s predictions, we show nudging reduces forecast herding and leads to a consensus earnings forecast that is less biased, more accurate, and more representative of investors’ earnings expectations. We show that the nudge confers net benefits to the consensus forecast via changes in forecaster behavior.

Keywords: nudging, social norms, earnings forecasts, analysts, consensus forecast, market reaction, crowdsourcing

JEL Classification: D91, D26, G41, G14, M41

Suggested Citation

Brown, Lawrence D. and Khavis, Joshua and Park, Han-Up, Nudging Towards Better Earnings Forecasts (February 29, 2024). Available at SSRN: https://ssrn.com/abstract=4202792 or http://dx.doi.org/10.2139/ssrn.4202792

Lawrence D. Brown

Temple University - Department of Accounting ( email )

Philadelphia, PA 19122
United States

Joshua Khavis (Contact Author)

University at Buffalo (SUNY) - School of Management ( email )

346 Jacobs Management Center
Buffalo, NY NY 14260
United States
7166453274 (Phone)

Han-Up Park

University of Saskatchewan - Edwards School of Business ( email )

Saskatchewan
Canada

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