Volume 7, Number 4, 2006 Abstracts
© Copyright Erlbaum 2006

Exuberant Irrationality: Judging Financial Books by their Covers
Andrew Coors – Laffer Associates
Lawrence Speidell – Ondine Asset Management

A Literature Review of Social Mood
Kenneth R. Olson – Fort Hays State University

Emotions exert a significant influence on financial behavior. The "socionomic hypothesis" posits social mood, the collective mood of individuals, as a primary causal variable in financial and social trends. In order to provide a scientific basis for the study of social mood, this article reviews psychological research on major mood-related elements of personality: affect, motivation, and personality traits. We examine the structure and functions of these core personality dimensions, and discuss research on contagion processes by which individuals' moods spread and manifest in a collective social mood. We also address implications for financial and economic behavior. Social mood is rooted in empirically established personality dimensions that are fundamental to human nature, and can influence financial outcomes.

Status Quo Bias and the Number of Alternatives: An Empirical Illustration from the Mutual Fund Industry
Alexander Kempf – University of Cologne
Stefan Ruenzi – University of Cologne

We examine the extent of the status quo bias (SQB) in a real-world repeated decision situation. Individuals who are subject to the SQB tend to choose an alternative that they chose previously (i.e., their status quo), even if it is no longer the optimal choice. We examine the U.S. equity mutual fund market and find strong evidence of the SQB. Furthermore, the SQB is more severe in segments that have more funds to choose from. Thus, we deliver the first empirical confirmation of the experimental results of Samuelson and Zeckhauser [1988] that the SQB depends positively on the number of alternatives.

Recall of Financial Information for Investment Decisions: The Impact of Encoding Specificity and Mental Imagery
Kenneth Ryack – Connecticut State University
Thomas Kida – University of Massachusetts

Given the volume of data analyzed in investment decisions, analysts and investors often must rely on their memory of financial information. Prior research suggests that differences in the amount of information used by investors may affect their valuation of securities and market prices. Thus, factors influencing the amount and accuracy of information recalled could impact estimates of stock value and market prices. Financial information is often presented in different formats. This study examines whether differences in format presentation at encoding and retrieval affect the recall of financial data. We also investigate whether memory for financial information can be improved with a simple technique that uses mental imagery to reinstate the original encoding conditions. We find that even a minor change in the presentation format has significant effects on memory for financial information. Our results also suggest that the use of mental imagery to reinstate the original format may significantly improve memory for financial data.

Mimicking Behavior in Repurchase Decisions
Mike Cudd – Mississippi College
Harold E. Davis – Southeastern Louisiana University
Marcelo Eduardo – Mississippi College

Behavioral biases associated with base rate neglect, anchoring, ambiguity aversion, and robust control may foster an environment in which mimicking may influence decision-making. This study tests for the presence of mimicking behavior in security repurchase decisions. After controlling for variables reflecting financial operating motives and mispricing associated with limits to arbitrage, results show that debt-equity choices in repurchase events are significantly enhanced by the occurrence of recent similar choices made by the firm's competitors. Specifically, the probability of opting to repurchase equity (debt) is positively associated with the size of the firm conducting the largest percentage equity (debt) repurchase in the same industry in the prior year. Moreover, the mimicking activity is observed for smaller-sized firms, but not for larger firms. The findings are consistent with the premise that managers of smaller firms are generally less skilled and experienced, and more prone to be influenced by decision shortcuts such as mimicking the actions of peers.

Research Elsewhere
Robert A. Olsen-California State University and Decision Science Research Institute in Eugene, Oregon

Book Reviews
Robert A. Olsen-California State University and Decision Science Research Institute in Eugene, Oregon