Information Search and Cognitive Stopping Rule Use in Investment Decision Making

• In Event: Managing and Evaluating AIS Research

Abstract

ABSTRACT: Information search is an essential component of most decision making tasks, including investment decision making. Research concerning how investors perform this due diligence search for information before making an investment decision is scant. Most research focuses on information types or sources that investors report to use through survey methods. This study relies on prior information systems research regarding the use of cognitive stopping rules to examine nonprofessional investors’ information gathering process, how nonprofessional investors’ decide to terminate the information gathering process and what information investors actually seek out as a result of the process. Protocol analysis is used to better determine what information is actually searched for during the information gathering stage of investment decision process. We find affects of stopping rules used on total information searched and type of information searched. We also find that stopping rule used affects perceptions of portfolio performance.
The results of this study have important implications for accounting information systems research and practice. Our study adds to this body of literature by providing evidence of what information is sought, when the information search stops and how much of that information mix is actually used in the investment decision task. We obtain this evidence using retrospective protocol analysis to control for priming effects that would influence the results. This study extends prior research in information systems concerning the use of cognitive stopping rules (Pitts and Browne 2004, Browne and Pitts 2004, Browne et al 2007). Also we add to the literature concerning information acquisition and search behavior within a specific class of investor – nonprofessional investors who perform their own information searches and make stock purchase decisions accordingly.

Authors

• Robin R. Pennington, North Carolina State University

• Andrea Seaton Kelton, Wake Forest University