Misled by Sensations? Quasi-experimental Field Evidence of Expectation-based Attribution Bias

University of Zurich, Institute of Business Administration, UZH Business Working Paper No. 396

46 Pages Posted: 30 Dec 2022 Last revised: 19 Jan 2024

See all articles by Pascal Flurin Meier

Pascal Flurin Meier

University of Zurich - Department of Business Administration (IBW)

Raphael Flepp

University of Zurich - Department of Business Administration (IBW)

Egon P. Franck

University of Zurich - Department of Business Administration (IBW)

Date Written: January 17, 2024

Abstract

We test expectation-based attribution bias using field data from financial analysts. Expectation-based attribution bias refers to the tendency of individuals to misattribute sensations of elation or disappointment, stemming from comparisons of outcomes with prior expectations, and arises because people face difficulties in separating experienced utility into gain-loss and reference-free utility. Employing a regression discontinuity design, we find that analysts whose forecasts have barely been met become increasingly optimistic relative to those whose forecasts have barely been missed. This result is consistent with the misattribution of the gain-loss utility and biased updating of analysts’ beliefs. Furthermore, our analyses show that analysts whose forecasts have barely been missed update their beliefs more strongly than analysts whose forecasts have barely been met, which is consistent with asymmetric misencoding of gain and loss utility. We contribute to the literature by providing important field evidence of expectation-based attribution bias in an environment with high stakes and expert decision makers.

Keywords: Attribution Bias; Reference dependence; Information processing; Expectation formation; Regression discontinuity design

JEL Classification: D81, D83, D91, G41

Suggested Citation

Meier, Pascal Flurin and Flepp, Raphael and Franck, Egon P., Misled by Sensations? Quasi-experimental Field Evidence of Expectation-based Attribution Bias (January 17, 2024). University of Zurich, Institute of Business Administration, UZH Business Working Paper No. 396, Available at SSRN: https://ssrn.com/abstract=4290726 or http://dx.doi.org/10.2139/ssrn.4290726

Pascal Flurin Meier (Contact Author)

University of Zurich - Department of Business Administration (IBW) ( email )

Plattenstrasse 14
Zurich, 8032
Switzerland

Raphael Flepp

University of Zurich - Department of Business Administration (IBW) ( email )

Plattenstrasse 14
Zurich, 8032
Switzerland

Egon P. Franck

University of Zurich - Department of Business Administration (IBW) ( email )

Plattenstrasse 14
Zurich 8032
Switzerland
+41 1 634 28 45 (Phone)

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