The Examination of Recency and Knowledge Effect in Investment Decision Making : An Experimental Study

Hogarth and einhorn (1992) document that, under uncertain conditions, people are affected by recency effect in their devision making. Other study finds that knowledge minimizes decision maker's bias (Dilla and Steinbart, 2005). We combine the ideas from the two previous studies by examining recency and knowledge effects in stock investment decision making when mixed information (fundamental and technical information) is sequentially presented. Using laboratory experimental study of 182 accounting undergraduate students, we test the bias in the stock investment decision making. We separate between the treatment and the control groups based on information about simple technical analysis knowledge. The results show that (1) there is recency effect when information (based on type and content) is sequentially presented; (2) based on technical analysis information, there is a difference in the stock investment decision making between the treatment and the control groups There is no difference in stock investment decision which resulted from fundamental analysis information. The results show that decision makers with accounting background tend to use only financial information, while those who understand technical analysis will consider both fundamental and technical data