Heterogeneous Priors and Information Choices: Evidence from Sell-Side Financial Analysts

49 Pages Posted: 12 Feb 2024 Last revised: 13 Feb 2024

See all articles by Keno Buß

Keno Buß

Goethe University Frankfurt

Jonas Wessel

Goethe University Frankfurt

Date Written: February 7, 2024

Abstract

We examine the effect of heterogeneous priors on economic agents’ information choices and their posterior beliefs variance. Drawing upon a Bayesian updating framework, we propose that agents acquire information consistent with their biased priors, which in turn manifests in their posterior beliefs. Exploiting location- and time-specific variation in priors stemming from mood shifts after the Super Bowl, we find that positive mood increases information acquisition, whereas negative mood leads to negatively skewed information choices and less receptiveness of new information. We further show that heterogeneity in priors weighting mechanism amplifies the contrary bias in analysts’ posterior beliefs dependent on the outcome of the Super Bowl. Overall, our study provides new evidence on the mechanism of how behavioral biases lead to disagreement among economic agents.

Keywords: information choices, prior beliefs, behavioral bias, disagreement, financial analyst

Suggested Citation

Buß, Keno and Wessel, Jonas, Heterogeneous Priors and Information Choices: Evidence from Sell-Side Financial Analysts (February 7, 2024). TRR 266 Accounting for Transparency Working Paper Series No. 140, Available at SSRN: https://ssrn.com/abstract=4719800 or http://dx.doi.org/10.2139/ssrn.4719800

Keno Buß (Contact Author)

Goethe University Frankfurt

Accounting Department
Theodor-W.-Adorno-Platz 4
Frankfurt, Hesse 60629
Germany

Jonas Wessel

Goethe University Frankfurt ( email )

Accounting Department
Theodor-W.-Adorno-Platz 4
Frankfurt am Main, 60323
Germany

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