A Graph is Worth a Thousand Words: How Overconfidence and Graphical Disclosure of Numerical Information Influence Financial Analysts Accuracy on Decision Making.

Ricardo Lopes Cardoso,André Carlos Busanelli de Aquino,Rodrigo Oliveira Leite,Aurora García-Gallego

doi:10.1371/journal.pone.0160443

Ricardo Lopes Cardoso, André Carlos Busanelli de Aquino + Show 2 more

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https://doi.org/10.1371/journal.pone.0160443

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Abstract

Previous researches support that graphs are relevant decision aids to tasks related to the interpretation of numerical information. Moreover, literature shows that different types of graphical information can help or harm the accuracy on decision making of accountants and financial analysts. We conducted a 4×2 mixed-design experiment to examine the effects of numerical information disclosure on financial analysts’ accuracy, and investigated the role of overconfidence in decision making. Results show that compared to text, column graph enhanced accuracy on decision making, followed by line graphs. No difference was found between table and textual disclosure. Overconfidence harmed accuracy, and both genders behaved overconfidently. Additionally, the type of disclosure (text, table, line graph and column graph) did not affect the overconfidence of individuals, providing evidence that overconfidence is a personal trait. This study makes three contributions. First, it provides evidence from a larger sample size (295) of financial analysts instead of a smaller sample size of students that graphs are relevant decision aids to tasks related to the interpretation of numerical information. Second, it uses the text as a baseline comparison to test how different ways of information disclosure (line and column graphs, and tables) can enhance understandability of information. Third, it brings an internal factor to this process: overconfidence, a personal trait that harms the decision-making process of individuals. At the end of this paper several research paths are highlighted to further study the effect of internal factors (personal traits) on financial analysts’ accuracy on decision making regarding numerical information presented in a graphical form. In addition, we offer suggestions concerning some practical implications for professional accountants, auditors, financial analysts and standard setters.

Highlights

The study of interpretation of graphical information by accountants is not something new
We examine whether four different types of information disclosure can help or harm financial analysts’ accuracy on the interpretation of numerical information, and we investigate the role of overconfidence in such decisionmaking processes
Based on results provided by previous literature [6, 7, 23] we propose that different forms of information disclosure differently affect informational perception and accuracy on decision making of financial analysts

Summary

Introduction

The study of interpretation of graphical information by accountants is not something new. Peterson [6] investigated the relationship of readers’ retention, reaction and reading time with four different presentation methods (narrative only, narrative with the aid of tables, narrative with the aid of graphs, and narrative with the aid of tables and graphs). Ten years after Peterson’s research, Kelly [7] investigated the effects of display format (text, tables and column graphs) and data density on time spent reading statistics. Display format caused significant effect on time spent; i.e., both tables and graphs were less time-consuming than text. There is a gap in the literature: no study has analyzed both intrinsic characteristics of the individual and how it affects interpretation of graphic information

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