FNCE 239 Lecture Notes - Lecture 9: Confirmation Bias
10 Mar 2016
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Document Summary
A tesla catches on ire and now you think that all automaic cars catch on ire: o. Pr (ire | electric) = pr(electric | ire) * pr(ire)/pr(electric) When we have to make a forecast about something we have 0 informaion about, any kind of informaion, no mater how irrelevant, afects it. People make esimates by staring from an iniial value (anchor) that is adjusted to yield the inal answer. The anchor may be suggested by the formaion of the problem, or may be irrelevant. Post-earnings announcement drit- shows that having the previous forecast of the earnings is a powerful anchor that analysts and the market overweigh in updaing their expectaions about the future o o. You see this coninuous adjustment over ime, suggesing that the immediate adjustment is too conservaive. Could be driving momentum, in that investors don"t react immediately to informaion that"s revealed. They don"t fully update (maybe due to anchoring- they"re anchored to the old data)
