Predicting short-term stock fluctuations by using processing fluency.
Three studies investigated the impact of the psychological principle of fluency (that people tend to prefer easily processed information) on short-term share price movements. In both a laboratory study and two analyses of naturalistic real-world stock market data, fluently named stocks robustly outperformed stocks with disfluent names in the short term. For example, in one study, an initial investment of 1,000 US dollars yielded a profit of 112 US dollars more after 1 day of trading for a basket of fluently named shares than for a basket of disfluently named shares. These results imply that simple, cognitive approaches to modeling human behavior sometimes outperform more typical, complex alternatives.
Alter
Adam L
AL
Department of Psychology, Princeton University, Princeton, NJ 08540, USA. aalter@princeton.edu
Oppenheimer
Daniel M
DM
D001519:Behavior / Q000502:physiology*; D005260:Female; D005376:Financial Management; D006801:Humans; D007449:Investments; D008606:Mental Processes; D008960:Models, Psychological; D008962:Models, Theoretical; D011897:Random Allocation