Figure 2.
A table presents three columns titled Stage, Key Features, and Behavioural biases or Proclivity for biases. The first stage is Gathering information. The key feature listed is complexity. Associated biases include spurious herding around similar sources of information, intentional herding around the broker consensus, and the need to maintain relationships with management to preserve access to information. The second stage is Processing information assessing relevance. The key feature is time pressure. Biases include cognitive load when assessing multiple data sources simultaneously, accounting information perceived as too old and too complex leading analysts to resort to other information sources requiring judgement and good relationships with management, scepticism after audit failures linked to the availability heuristic, and use of intuition to evaluate information shared in direct interactions with management. The third stage is Processing information using information to update the model. Key features include adherence to employers research protocols and reputational consideration such as analyst awards. Biases include spurious herding due to employers research protocols, intentional herding around broker consensus due to reputational considerations such as analyst awards, attributing accurate predictions to self and inaccurate predictions to uncontrollable factors indicating possible overconfidence, reputational motivation for overconfidence to attract clients, reluctance to revise recommendations downward indicating possible disposition effect, and the need to maintain relationships with management, which is possibly more pronounced in sponsored research due to declining independent coverage.Key features of analysts’ processes and proclivity for bias