NATIONAL BUREAU OF ECONOMIC RESEARCH
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Decision Fatigue and Heuristic Analyst Forecasts

David Hirshleifer, Yaron Levi, Ben Lourie, Siew Hong Teoh

NBER Working Paper No. 24293
Issued in February 2018, Revised in February 2018
NBER Program(s):Asset Pricing

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.

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Document Object Identifier (DOI): 10.3386/w24293

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