Now you see it now you don't: The effectiveness of the recognition heuristic for selecting stocks
It has been proposed that recognition can form the basis of simple but ecologically rational decision strategies (Gigerenzer & Goldstein, 1996). Borges, Goldstein, Ortmann, & Gigerenzer (1999) found that constructing share portfolios based on simple name recognition alone often yielded bette...
| Main Authors: | , |
|---|---|
| Format: | Article |
| Language: | English |
| Published: |
Cambridge University Press
2007-02-01
|
| Series: | Judgment and Decision Making |
| Subjects: | |
| Online Access: | https://www.cambridge.org/core/product/identifier/S1930297500000255/type/journal_article |
| _version_ | 1797696348428959744 |
|---|---|
| author | Patric Andersson Tim Rakow |
| author_facet | Patric Andersson Tim Rakow |
| author_sort | Patric Andersson |
| collection | DOAJ |
| description | It has been proposed that recognition can form the basis of simple but ecologically rational decision strategies (Gigerenzer & Goldstein, 1996). Borges, Goldstein, Ortmann, & Gigerenzer (1999) found that constructing share portfolios based on simple name recognition alone often yielded better returns than the market index. We describe four studies with seven samples of participants from three countries (total N = 319) in which the returns of recognized and unrecognized shares from several stock markets were tracked over various periods of time. We find no support for the claim that a simple strategy of name recognition can be used as a general strategy to select stocks that yield better-than-average returns. However, there was some suggestion in the data that recognition performs better when the market is falling and worse when it is rising. A follow-up study indicated that the absence of an overall recognition effect could not easily be attributed to our reliance on student participants or smaller samples than Borges et al. (1999) had used. We conclude that, with respect to changes in value, selecting stocks on the basis of name recognition is a near-random method of portfolio construction that offers little, if any, benefit to the personal investor. |
| first_indexed | 2024-03-12T03:25:05Z |
| format | Article |
| id | doaj.art-7b0f40ea09484ffab40dded315bcd0b5 |
| institution | Directory Open Access Journal |
| issn | 1930-2975 |
| language | English |
| last_indexed | 2024-03-12T03:25:05Z |
| publishDate | 2007-02-01 |
| publisher | Cambridge University Press |
| record_format | Article |
| series | Judgment and Decision Making |
| spelling | doaj.art-7b0f40ea09484ffab40dded315bcd0b52023-09-03T13:42:58ZengCambridge University PressJudgment and Decision Making1930-29752007-02-012293910.1017/S1930297500000255Now you see it now you don't: The effectiveness of the recognition heuristic for selecting stocksPatric Andersson0Tim Rakow1Centre for Economic, Psychology, Stockholm School of Economics Stockholm, SwedenDepartment of Psychology, University of EssexIt has been proposed that recognition can form the basis of simple but ecologically rational decision strategies (Gigerenzer & Goldstein, 1996). Borges, Goldstein, Ortmann, & Gigerenzer (1999) found that constructing share portfolios based on simple name recognition alone often yielded better returns than the market index. We describe four studies with seven samples of participants from three countries (total N = 319) in which the returns of recognized and unrecognized shares from several stock markets were tracked over various periods of time. We find no support for the claim that a simple strategy of name recognition can be used as a general strategy to select stocks that yield better-than-average returns. However, there was some suggestion in the data that recognition performs better when the market is falling and worse when it is rising. A follow-up study indicated that the absence of an overall recognition effect could not easily be attributed to our reliance on student participants or smaller samples than Borges et al. (1999) had used. We conclude that, with respect to changes in value, selecting stocks on the basis of name recognition is a near-random method of portfolio construction that offers little, if any, benefit to the personal investor.https://www.cambridge.org/core/product/identifier/S1930297500000255/type/journal_articleheuristicsrecognitioninvestment |
| spellingShingle | Patric Andersson Tim Rakow Now you see it now you don't: The effectiveness of the recognition heuristic for selecting stocks Judgment and Decision Making heuristics recognition investment |
| title | Now you see it now you don't: The effectiveness of the recognition heuristic for selecting stocks |
| title_full | Now you see it now you don't: The effectiveness of the recognition heuristic for selecting stocks |
| title_fullStr | Now you see it now you don't: The effectiveness of the recognition heuristic for selecting stocks |
| title_full_unstemmed | Now you see it now you don't: The effectiveness of the recognition heuristic for selecting stocks |
| title_short | Now you see it now you don't: The effectiveness of the recognition heuristic for selecting stocks |
| title_sort | now you see it now you don t the effectiveness of the recognition heuristic for selecting stocks |
| topic | heuristics recognition investment |
| url | https://www.cambridge.org/core/product/identifier/S1930297500000255/type/journal_article |
| work_keys_str_mv | AT patricandersson nowyouseeitnowyoudonttheeffectivenessoftherecognitionheuristicforselectingstocks AT timrakow nowyouseeitnowyoudonttheeffectivenessoftherecognitionheuristicforselectingstocks |