Belief adjustment: a double hurdle model and experimental evidence

We present an experiment where subjects sequentially receive signals about the true state of the world and need to form beliefs about which one is true, with payoffs related to reported beliefs. We attempt to control for risk aversion using the Offerman et al. (Rev Econ Stud 76(4):1461–1489, 2009) technique. Against the baseline of Bayesian updating, we test for belief adjustment underreaction and overreaction and model the decision making process of the agent as a double hurdle model where agents with inferential expectations first decide whether to adjust their beliefs and then, if so, decide by how much. We also test the effects of increased inattention and complexity on belief updating. We find evidence for periods of belief inertia interspersed with belief adjustment. This is due to a combination of random belief adjustment; state-dependent belief adjustment, with many subjects requiring considerable evidence to change their beliefs; and quasi-Bayesian belief adjustment, with aggregate insufficient belief adjustment when a belief change does occur. Inattention, like complexity, makes subjects less likely to adjust their stated beliefs, while inattention additionally discourages full adjustment.

Does the Order of Information Affect Investors' Investment Decisions? Experimental Investigation

Research aims: This study examines the order of information’s effect according to the Belief Adjustment Model. In particular, this study investigates the effect of the direction of the order and the pattern of presenting information in making investment decisions.Design/Methodology/Approach: The research applied an experimental method with web-based instruments using a 2x2 factorial design between subjects, involving 65 investors.Research findings: The investors’ investment valuation who received negative to positive information sequence direction was higher than the investors who received positive to negative information direction. Furthermore, there was an order effect in the form of recency on investors who received a partial presentation pattern. Meanwhile, investors who received a simultaneous pattern did not show an order effect in their assessment. These findings underline that the simultaneous pattern could reduce the order effect, so that investors need to generalize the information as a whole to avoid this bias.Theoretical contribution/Originality: This study extends the investigation of investment decisions using a long sequence of information perspectives and more varied types of information (e.g., financial information, corporate governance, and industry sectoral information that has an impact on company conditions) in making investment decisions on the belief adjustment model.Practitioner/Policy implication: Companies must maintain the direction of the order and the presentation patterns when issuing company information to maintain the quality of investors' decisions and avoid the risk of volatility in company shares.Research limitation/Implication: Participants who joined this research were active investors but had not yet had a comprehensive experience.

Framing Effect And Belief Adjustment Model In Investment Judgment

This study aims to examine the framing effect and belief adjustment model of the investment decision. A previous study examined partially the effect of framing and belief adjustment models. This research used experiment method. Research method is 2 x 2 x 2 mixed design experiment (between and within subject). Experiment method of 2 x 2 x 2 includes disclosure pattern (step by step and end of sequence), evidence order (good news followed by bad news and bad news followed by good news), and Framing Effect (negative frame and positive frame). Research participants in this research are: non-professional investor and professional investor. The number of participants in this research is 274 people consisting of 154 participants from non-professional investors and 120 participants from professional investors. The experiment was done by researcher in June to October 2015. The results showed framing effect, the order of presentation and the presentation of information patterns affect investors in making investment decisions. The contribution for financial accountancy literature is that this research tries to conduct reconstruction on puzzle of investment decision making model.

VALUE OF INVESTORS’ ESCALATION OF COMMITMENT IN PPP PROJECTS USING REAL OPTION THINKING

Escalation of commitment (EOC) is a common behavior among investors who receive negative feedback (NF) in public-private partnership (PPP) projects, and this behavior typically leads to sizable losses. Recognizing this, investors set a mental threshold and track investments for escalation. Once losses reach the threshold, investors will terminate the escalation behavior, namely, they will transfer projects to governments to obtain compensation or residual asset value. This paper analyzes the maximum amount of NF that investors can sustain based on a belief-adjustment model, followed by the analysis of the greatest loss degree. Then, a threshold model for EOC is constructed using real option thinking. Different from the usual judgment criteria of the traditional option method, the threshold is less than zero in the EOC scenario. The results show that the threshold correlates with the initial generative cognition, the sunk cost level, the degree of the government guarantee and investors’ behavioral preferences as well as with total investment and return on investment. These findings serve as a reference for governments to de-escalate investors’ commitment in PPP projects.

Predicting Serial Position Effects1

Chapter four provides details of a meta-analysis conducted into serial position effects. The meta-analysis also identified whether there are any significant differences in the proportion of bias under different analytical conditions between belief adjustment conducted in an intelligence scenario and belief adjustment conducted in non-intelligence scenarios. The chapter argues that there is no compelling evidential basis to suggest that serial position effects or confirmation bias affect intelligence analysis differently from non-intelligence analysis. It will show that the analytical conditions of volume of information, reliance on recall, accountability and type of information likely have an impact on serial position effects. The results undermine key assumptions in predominant predictions models. This includes the belief-adjustment model for serial position effects (Hogarth and Einhorn 1992).

Effect of Ordo in Assessment of Financial and Non-Financial Information

This research focuses on investor decision making on information provided by the company. Belief-adjustment models emphasize the order of presentation of information. Order effects occur when decisions made by individuals differ after receiving evidence in a different order. In order of evidence, the characteristics of the evidence are mixed between confirmative (positive) information and unconfirmed (negative) information.The participants of this study are investors who have investment accounts. The design of the 2x4 experimental method is divided into analysis of factor 2 (presentation pattern) x 4 (information value), which aims to test that the presentation of information in step by step (SBS) will have a better impact than end of sequence (EOS). There are 8 combinations of instruments contain patterns and information values that are used as a source of stock valuation. ANOVA analysis is used for this study. The results showed that there was an effect of the pattern of information delivery in investment decision making when the SBS and EOS disclosure patterns in hypothesis 1 and hypothesis 2. The results of hypothesis 3 did not support the belief adjustment model theory.

Pengujian model belief adjustment dan framing effect pada informasi akuntansi seri panjang terhadap pengambilan keputusan investasi

The objective of this research is to know whether there is a difference among investment decisions by non-professional investors if the provided informations are presented in some different ways. Belief adjustment model (order of information and disclosure pattern) and framing effect are pretended as some factors which influence investors to make different decision. Design experiment for this research is 2x2x2. Participants whom involved in this research were 111 students of STIE Perbanas Surabaya bachelor degree majoring in Accounting and Management. The statistical method used in this study is independent sample t-test or mann-whitney u-test. The results show that either step by step or end of sequence can caused recency effect, and it is greater for sequential condition than simultaneous condition. But, the result is inconsistent for end of sequence pattern which in some conditions can caused no order effect. In another side, the result also proved that framing effect can influence investor’s consideration in decision making.

The Examination Belief Adjustment Model against Overconfidence Investor Decision Making Investments

This study tested the model of belief adjustment in investment decision. This study aims to examine the difference in the final judgement given by investors using belief adjustment considering on the pattern of presentation (Step by Step and End of Sequence), order of information, series information and the level of overconfidence againts investment decision making. Design of Experiments in this study is that pattern of presentation 2x2x2x2 , Step by Step and End of Sequence, order of information (good news followed by bad news and bad news followed by good news), series information (long series dan short series) and the level of overconfidence. The research hypothesis of research in this study were tested by Independent Sample t-test. The result in this study showed the recency effect on the pattern of presentation of the Step by Step for information long series and short series. This is also reflected in the End of Sequence showed no effects occur on the order of a long series and recency effects occur in a short series.