Working Paper: NBER ID: w24293
Authors: David Hirshleifer; Yaron Levi; Ben Lourie; Siew Hong Teoh
Abstract: Psychological evidence indicates that decision quality declines after an extensive session of decision-making, a phenomenon known as decision fatigue. We study whether decision fatigue affects analysts’ judgments. Analysts cover multiple firms and often issue several forecasts in a single day. We find that forecast accuracy declines over the course of a day as the number of forecasts the analyst has already issued increases. Also consistent with decision fatigue, we find that the more forecasts an analyst issues, the higher the likelihood the analyst resorts to more heuristic decisions by herding more closely with the consensus forecast, by self-herding (i.e., reissuing their own previous outstanding forecasts), and by issuing a rounded forecast. Finally, we find that the stock market understands these effects and discounts for analyst decision fatigue.
Keywords: No keywords provided
JEL Codes: D91; G02; G24; G4; G41
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| decision fatigue (D91) | forecast accuracy (C53) |
| number of forecasts issued (G17) | decision fatigue (D91) |
| decision fatigue (D91) | herding probability (C92) |
| number of forecasts issued (G17) | herding probability (C92) |
| number of forecasts issued (G17) | self-herding (C92) |
| decision fatigue (D91) | self-herding (C92) |
| number of forecasts issued (G17) | rounded forecasts (C53) |
| decision fatigue (D91) | rounded forecasts (C53) |