How “Point Blindness” Dilutes the Value of Stock Market Reports

Lupia, Arthur and Grafstrom, Cassandra and Krupnikov, Yanna and Levine, Adam Seth and MacMillan, William and McGovern, Erin (2008): How “Point Blindness” Dilutes the Value of Stock Market Reports.

Abstract

The stock index “point” is a focal component of financial news reports. Though many reports draw attention to point changes in major indices, few people realize that the value of a stock index “point” changes frequently. We call this perceptual phenomenon “point blindness.” We examine causes of point blindness and then propose alternate ways of reporting stock market information to counter it. The alternatives are easy to implement and can help citizens draw important inferences about stock values. An experiment shows that alternate modes of presentation have significant effects on public perceptions of the stock market.

• Item Type: MPRA Paper
• Language: English
• Keywords: stock market; stock index; financial reporting; news; real nominal relations
• Subjects: H - Public Economics > H3 - Fiscal Policies and Behavior of Economic Agents > H30 - General; G - Financial Economics > G0 - General > G00 - General; D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D80 - General

References

Bettman, James R., and Pradeep Kakkar. 1977. “Effects of Information Presentation Format on Consumer Acquisition Strategies.” The Journal of Consumer Research (3): 233-240.

Cohen, Randolph B., Christopher Polk, and Tuomo Vuolteenaho. 2005. “Money Illusion in the Stock Market: The Modigliani-Cohn Hypothesis.” Quarterly Journal of Economics 120: 639-668.

Einhorn, Hillel J., and Robin M. Hogarth. 1981. “Behavioral Decision Theory: Processes of Judgment and Choice.” Annual Review of Psychology 32: 53-88.

Fisher, Irving. 1928. The Money Illusion. New York: Adelphi.

Gabaix, Xavier, David Laibson, Guillermo Moloche and Stephen Weinberg. 2006. “Costly Information Acquisition: Experimental Analysis of a Boundedly Rational Model.” The American Economic Review 96: 1043-1068.

Hacker, Jacob S. 2006. The Great Risk Shift: The Assault on American Jobs, Families, Health Care and Retirement – And How You Can Fight Back. New York: Oxford University Press.

Hirshleifer, David, and Siew Hong Teoh. 2003. “Limited Attention, Information Disclosure, and Financial Reporting.” Journal of Accounting and Economics 36: 337-386.

Jarvenpaa, Sirkka L. 1989 “The Effect of Task Demands and Graphical Format on Information Processing Strategies.” Management Science (35): 285-303.

Lurie, Nicholas H., and Charlotte Mason. 2007 “Visual Representation: Implications for Decision Making.” Journal of Marketing 71: 160-177.

Medin, Douglas L., Robert L. Goldstone, and Dedre Gentner. 1993. “Respects for Similarity.” Psychological Review 2: 254-278.

Modigliani, Franco, and Richard Cohn. 1979. “Inflation, Rational Valuation, and the Market,” Financial Analysts Journal 35: 24–44.

Most, Steven B., Brian J. Scholl, Erin R. Clifford, Daniel J. Simons. 2002. “What You See Is What You Set: Sustained Inattentional Blindness and the Capture of Awareness.” Psychological Review 112 (1): 217-242.

Norris, Floyd. 2006. “Dow Set a Record in Height, but Weight had a lot to do with That.” New York Times, October 7, Section C, page 3.

Poterba, James, Joshua Rauh, Steven Venti, and David Wise. 2006. “Defined Contribution Plans, Defined Benefit Plans, and the Accumulation of Retirement Wealth.” National Bureau of Economic Research Working Paper 12597.

Sausgruber, Rupert, and Jean-Robert Tyran. 2005. “Testing the Mill Hypothesis of Fiscal Illusion.” Public Choice 122 (1): 39-68.

Shafir, Eldar, Peter Diamond, and Amos Tversky. 1997. “Money Illusion.” The Quarterly Journal of Economics 112: 341-374.

Shiller, Robert J. 2001. “Exuberant Reporting: Media and Misinformation in the Markets.” Harvard International Review 23: 60-65.

Simon, Herbert. 1955. “A Behavioral Model of Rational Choice.” Quarterly Journal of Economics 69: 99-118.

Skov, Richard B., and Steven. J. Sherman. 1986. “Information-gathering Processes: Diagnosticity, Hypothesis-confirmatory Strategies, and Perceived Hypothesis Confirmation.” Journal of Experimental Social Psychology 22: 93–121.

Social Security Administration. 2007. “Status of the Social Security and Medicare Programs: A Summary of the 2007 Annual Reports. A Message to the Public.” http://www.ssa.gov/OACT/TRSUM/trsummary.html

Stone, Eric R., J. Frank Yates, and Andrew M. Parker. 1997. “Effects of Numerical and Graphical Displays on Professed Risk-taking Behaviour.” Journal of Experimental Psychology: Applied 3(4): 243-256

Tyran, Jean-Robert. 2007. “Money Illusion and the Market.” Science 317: 1042-1043.

Tversky, Amos. 1977. “Features of Similarity.” Psychological Review 84: 327-352.