Properties of Judgment Models in a Financial Setting

By William Wright
1978| Working Paper No. 424

The purpose of this study is to extend judgment research by investigating properties of information processing models utilized in a financial judgment situation. Forty-seven graduate business school students estimated percentage changes in the prices of fifty securities. An important element of the research design is the availability of an objective, readily determinable “environmental” processing model. Dimensions of cognitive processing considered here include the accuracy and reliability of judgments, linear vs. nonlinear processing, interjudge agreement and self-insight into weighting and combining of information cues. The results are compared with evidence from other areas of applied psychology. Individual and aggregated (“nominal group”) judgment models were generated. Aggregation models depict processing representative of the set of subjects and diversification out of individual biases and errors is possible. Statistically significant levels of judgment accuracy are reported here. Moderate agreement among the subjects was noted and a linear model did not explain a large percentage of the variance in judgments. A significant degree of self-insight into the relative weighting of cues by subjects is indicated. The aggregation models outperformed the “average” individual within the respective groups of subjects.