Predicting short-term stock fluctuations by using processing fluency.

Adam L Alter; Daniel M Oppenheimer

doi:10.1073/pnas.0601071103

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Predicting short-term stock fluctuations by using processing fluency.

Adam L Alter·Daniel M Oppenheimer

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Abstract

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.

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Behavior Female Financial Management Humans Investments Mental Processes Models, Psychological Models, Theoretical Random Allocation Journal Article Research Support, U.S. Gov't, Non-P.H.S.

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Adam L Alter, Daniel M Oppenheimer. 2006-06-05. Predicting short-term stock fluctuations by using processing fluency.. https://doi.org/10.1073/pnas.0601071103

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