Financial Information Processing Models: An Empirical Study

By William F. Wright
1976| Working Paper No. 246

Given the objective of describing quantitatively how people use financial data to generate financial judgments, second year graduate business school students were provided with data for each of sixty companies in an experimental setting and an estimate of the change insecurity price over a one year period was obtained from each subject for each security. Properties of the cognitive models people used to generate the price changes were inferred within the context of the Brunswik Lens Model. Topics considered included judgmental accuracy and consistency, types of models used including consideration of linear vs. nonlinear information processing and interjudge agreement. Reported results include empirical evidence on subjective security price change distributions, an encouraging degree of accuracy, a tendency to overestimate the prices of “low priced” securities, evidence consistent with linear processing of financial data, depiction of distinct clusters of cognitive models and limited interjudge agreement. Suggestions for future research are also indicated.