HARMFUL EFFECTS OF SEEMINGLY HELPFUL INFORMATION ON FORECASTS OF STOCK EARNINGS

Decision makers have expanding access to business information via comp uterized news retrieval systems. A greater understanding is needed abo ut how this news retrieval information influences their performance an d confidence. MBA students from an advanced finance course forecasted stock earnings using a computerized information system designed to sim ulate systems used in practice. Disguised actual company data were pre sented in three different treatments: baseline information, baseline p lus redundant news information, and baseline plus nonredundant news in formation. The redundant information made subjects significantly more confident in their forecasts compared to the baseline case. The nonred undant information made subjects significantly more confident than bot h the baseline case and the redundant case. Forecast accuracy, however , was significantly diminished in both the redundant and nonredundant conditions compared to baseline. Thus, the additional news information , whether redundant or nonredundant, had the effect of degrading perfo rmance while increasing confidence. This indicates that decision maker s may be poor judges of the usefulness of newly available information sources, and may be influenced by information that does not improve th eir performance under the false impression that it is helpful.