Memory, Retrieved Context, and Bias in Management Earnings Forecasts

The impact of memory on economic choices can be essential, but empirical evidence of the link between them remains scarce. This study examines whether the retrieval of memories related to economic recessions affects the changes in the bias in management forecasts. Using the 2008 financial crisis as a memory trigger and focusing on annual management earnings forecasts issued for fiscal years ending between 2002 and 2018, we find that chief executive officers (CEOs) with more long-term memories of leading through past recessions and those with more intense recent memories of the financial crisis embed greater pessimism in their forecasts after the financial crisis. These findings support the retrieved-context theory in human memory as well as the availability heuristic and the recency effect in psychology. Further analyses show that it takes about three years for the increased pessimism in management forecasts to return to the pre-crisis level, mainly for CEOs with more memories of past recessions. These findings suggest that memory retrieval may delay managers’ learning after the financial crisis. Our study offers new insights into the role that memory plays in managers’ decision making. This paper was accepted by Eric So, accounting. Supplemental Material: The data files are available at https://doi.org/10.1287/mnsc.2022.04053 .

• 저널Management Science · 72(3) · 2451–2476
• 토픽Financial Markets and Investment Strategies · Finance
• DOI10.1287/mnsc.2022.04053
• 저자David S. Koo, Isabel Yanyan Wang, S Wu