Recall of Financial Information for Investment Decisions: The Impact of Encoding Specificity and Mental Imagery

Abstract

Given the volume of data analyzed in investment decisions, analysts and investors often must rely on their memory of financial information. Prior research suggests that differences in the amount of information used by investors may affect their valuation of securities and market prices. Thus, factors influencing the amount and accuracy of information recalled could impact estimates of stock value and market prices. Financial information is often presented in different formats. This study examines whether differences in format presentation at encoding and retrieval affect the recall of financial data. We also investigate whether memory for financial information can be improved with a simple technique that uses mental imagery to reinstate the original encoding conditions. We find that even a minor change in the presentation format has significant effects on memory for financial information. Our results also suggest that the use of mental imagery to reinstate the original format may significantly improve memory for financial data.