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Nomen est omen? How and when company name fluency affects return expectations.
Achiel Fenneman1, Dirk-Jan Janssen2, Sven Nolte2
1Department of Cognition, Emotion, and Methods in Psychology, University of Vienna, Vienna, Austria.
Plos One
|August 16, 2023
Summary
Company name fluency influences investor stock profitability perceptions through non-deliberate and deliberate channels. While non-deliberate effects are consistent, deliberate effects are context-dependent, and both diminish with additional stock information.
Area of Science:
- Behavioral Finance
- Cognitive Psychology
- Decision Science
Background:
- Investors often exhibit biases in stock perception and valuation.
- Company name fluency (ease of processing) has been anecdotally linked to perceived profitability.
Purpose of the Study:
- To investigate the psychological mechanisms underlying the fluency-profitability perception link in stock investing.
- To disentangle the roles of non-deliberate affect and deliberate interpretation in this phenomenon.
Main Methods:
- Utilized preregistered experimental designs to isolate and test different theoretical channels.
- Employed controlled participant groups to assess the robustness and boundary conditions of fluency effects.
Main Results:
- Confirmed a significant non-deliberate (affective) fluency effect on stock profitability perception.
- Demonstrated that the deliberate (quality signaling) fluency effect is malleable and context-dependent.
- Observed that both fluency effects are consistent across diverse participant demographics.
Conclusions:
- Name fluency exerts a measurable influence on investor stock perceptions, operating through both automatic and controlled cognitive processes.
- The impact of name fluency is significant but can be moderated or overridden by the availability of supplementary information, highlighting the complexity of investment decision-making.
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