On Cognitive Ability and Learning in a Beauty Contest

We reinvestigate a version of the beauty contest originally developed by Keynes (1936) with a focus on cognitive reflection. Using a sample of 166 undergraduate students at a regional university in Florida, we confirm previous research by Burnham et al. (2009) that cognitive reflection, as measured by Frederick's (2005) cognitive reflection test, matters in the first round of the game; players with a higher CRT score pick significantly lower numbers, and their responses cluster more. Unlike previous research, however, we find that cognitive ability is important only when faced with a new situation. In subsequent rounds of the game, cognitive ability is subordinate to a learning effect and players' responses and the variability of responses are not significantly related to CRT scores. This finding is important in financial markets, since it implies that anticipating the decisions and actions of other players is a function of experience, not necessarily cognitive ability.beauty contest, cognitive reflection test, cognitive ability, CRT

Overconfidence in salary expectations after graduation

We investigate the degree of overconfidence in earnings percentile expectations one year, five years, and ten years after graduation. The results reveal extreme overconfidence in the expected earnings percentile five years and ten years after graduation. This overconfidence is only marginally explained by various demographic variables, including gender, marital status, socioeconomic status, GPA, and the perceived difficulty in finding a job after graduation. A subsample of “highly motivated” finance students expects to earn less than regular students one and five years after graduation, but is more overconfident about its increasing earnings potential over time. The findings reported here are useful in managing graduates’ expectations as they enter the workforce

The stock market behaviour prior and subsequent to new highs

Until recently, the empirical focus of the finance literature has been on the long-accepted weak-form and potentially semistrong-form of market efficiency, as initially argued by Sharpe and by Lintner. A recently heavily researched area of behavioural financial research may bring us one step closer to understanding the psychology of investors and its effects on financial markets. The objective of this article is to investigate the aggregate behaviour of the stock market immediately prior and subsequent to new stock market highs over the period 1988 to 2002. General results indicate that abnormal returns over five windows prior to new level highs with highs of 50, 100, 500, and 1000 points in the Dow Jones Industrial Average and the S&P 500 index are significantly lower than returns over the same windows on non-high days. Interestingly, there is little momentum associated with abnormal returns subsequent to new highs. Furthermore, there is some evidence that the variance of abnormal returns in the windows surrounding new high days is significantly larger than the variance of abnormal returns over the same window on non-high days for all levels investigated and both prior and subsequent to the new high days. These results indicate that new index highs in a stock market index present a psychological barrier for investors, who trade cautiously as the new index high is approached. The larger return variance prior and subsequent to the new high day is indicative of active buying and selling activity prior and subsequent to the new high.

Why Some People Multitask Better Than Others: Predicting Learning and IS Usage

Multitasking using information systems (IS) comprised of hardware, software, and networks is growing such that there is a blurring between personal and work lives. Consequently, it is important to study the antecedents and effects of IS multitasking (Spink et al., 2008). There exists an overwhelming body of literature that points to overall negative effects of traditional multitasking. Surprisingly, research on IS multitasking is relatively scarce (Benbunan-Fich et al., 2009; Spink and Waller, 2008). To address this gap in research, we hypothesize and test a research model that identifies antecedents and outcomes of IS multitasking. Subjects were drawn from ‘millenials’ that have grown up using multiple IS devices and are ready to enter the workforce. Contrary to prior research, we find that IS multitasking leads to significant positive effects on ‘cognitive absorption’, ‘change in mental models’ (or learning), and ‘IS usage’. In turn, IS multitasking was significantly predicted by ‘personal innovativeness with technology’ and ‘computer polychronicity’ It is possible that multitasking in today’s world with information devices is a unique phenomenon that differs from traditional multitasking. Our study has implications for attitudes toward IS multitasking as well as designing training activities and multitasking systems