Now you see it now you don't: The effectiveness of the recognition heuristic for selecting stocks

Patric Andersson and Tim Rakow

Judgment and Decision Making, 2007, vol. 2, issue 1, 29-39

Abstract: It has been proposed that recognition can form the basis of simple but ecologically rational decision strategies (Gigerenzer & Goldstein, 1996). Borges, Goldstein, Ortmann, & Gigerenzer (1999) found that constructing share portfolios based on simple name recognition alone often yielded better returns than the market index. We describe four studies with seven samples of participants from three countries (total N = 319) in which the returns of recognized and unrecognized shares from several stock markets were tracked over various periods of time. We find no support for the claim that a simple strategy of name recognition can be used as a general strategy to select stocks that yield better-than-average returns. However, there was some suggestion in the data that recognition performs better when the market is falling and worse when it is rising. A follow-up study indicated that the absence of an overall recognition effect could not easily be attributed to our reliance on student participants or smaller samples than Borges et al. (1999) had used. We conclude that, with respect to changes in value, selecting stocks on the basis of name recognition is a near-random method of portfolio construction that offers little, if any, benefit to the personal investor.

Date: 2007
References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.cambridge.org/core/product/identifier/ ... type/journal_article link to article abstract page (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cup:judgdm:v:2:y:2007:i:1:p:29-39_4

Access Statistics for this article

More articles in Judgment and Decision Making from Cambridge University Press Cambridge University Press, UPH, Shaftesbury Road, Cambridge CB2 8BS UK.
Bibliographic data for series maintained by Kirk Stebbing ().