Limited Information Processing Capacity Research Articles

How quickly do investors react to analyst reports? Evidence from reports released outside trading hours

This study analyzes whether the publication timing of reports released outside trading hours affects subsequent price drift to determine if investors respond immediately to analyst reports. Significant price drifts are observed for revisions in target prices, especially when a report is released within two hours before the market opens. Furthermore, the influence of publication timing is crucial when investors must process information about earnings announcements and multiple reports. Conversely, the influence is irrelevant to the visibility of reports (e.g., broker size and star analyst status). The identified limitation of investors' response is attributable to their limited information-processing capacity.

What do we know about the punctuated equilibrium theory in China? A systematic review and research priorities

AbstractThe punctuated equilibrium theory (PET) shows that government policy is mostly stable with occasional drastic change, which scholars attribute to institutional friction and limited information processing capacity. Although the existing PET literature predominantly focuses on democracies, scholars have started to apply the theory to authoritarian countries. Autocracies are a fertile testing ground for the theory's underlying mechanisms because they appear to experience less institutional friction but more informational restrictions than democracies. However, PET studies on autocracies are still rare. To deepen our understanding of the PET and the policy process beyond democracies, we conduct a systematic review of 88 Chinese language PET journal articles. We show that Chinese language PET research is increasing. Contrary to the English language PET literature, most Chinese studies are qualitative, while a key similarity is the weak operationalization of PET core concepts. The reviewed studies confirm a punctuated equilibrium pattern of policymaking in China but provide only limited evidence for more intense punctuations compared with democracies. Future PET research on China ought to use long‐term data sets and examine institutional friction and information processing by policymakers. We also argue for more international exchange and comparative research to advance our understanding of the policy process in China and other autocracies.

Revenue sharing bids of a loss-averse supplier for a new product development contract: a multi-method investigation

PurposeWhen developing a new product, a buying firm solicits revenue sharing bids from two competing suppliers. Bidding behaviors of suppliers do not always align with predictions from rational agent models due to task uncertainty and bounded rationality, which could result in non-optimal supplier offers and ultimately hurt buying firm interests. This paper aims to discuss the aforementioned issues.Design/methodology/approachThe authors built an analytical model that considers the impact of supplier technological risk, buyer–supplier coordination cost and supplier loss aversion on the optimal bid of the supplier. Next, using limited information processing capacity as a theoretic lens, the authors explore antecedents to the size of a focal supplier's bidding error, the absolute difference between the actual bid and the optimal bid. The authors used quantitative lab experimental data to test the hypotheses.Findings(1) Bounded rational bidders often fail to differentiate between relevant and irrelevant competitive information when placing bids, (2) loss aversion of a bidder significantly affects not only levels of bids, particularly for bidders with competitive disadvantages, but also sizes of the bidding error and (3) competitive information that has clearer performance implications are more influential in reducing sizes of bidding errors.Originality/valueThe results provide a comprehensive view of the bidding behaviors of a bounded rational supplier in an innovation outsourcing context with competition. With the results, managers now have a better understanding of behavioral influencers behind non-optimal supplier bids in an innovation outsourcing context.

Does a firm’s geographic feature matter for stock returns? Evidence from the Chinese A-share market

ABSTRACT This study reveals a new stock return predictability that relates to firms’ geographic features in the Chinese A-share market. Using a text-based measure of the degree of localness to capture the economic ties between firms and their provinces, we find that low-localized firms are slow to incorporate local information into stock prices. Specifically, there is a significant lead-lag effect in stock returns between high- and low-localized firms in the same region, and a portfolio that exploits this pattern can generate a monthly alpha of about 1%. This effect cannot be explained by geographic or industry return momentum, investors’ inattention, and limits to arbitrage. We find that this return predictability is mainly driven by investors’ limited information-processing capacity, and the evidence of predictability is stronger among low-localized firms with highly complicated business structures.

DESIGN FINANCIAL ACCOUNTING USING BLOCKCHAIN APPROACH IN EDUCATION

Indonesia memasuki revolusi 4.0 yang membawa banyak sekali perubahan di segala bidang termasuk bidang teknologi. Teknologi keterbaharuan terbesar bersifat terdesentralisasi dengan ciri transparan, nyaman, permanen serta tidak bisa diganti yang biasa dikenal dengan Blockchain. Blockchain sudah diterapkan di banyak bidang semacam cryptocurrency, akuntansi serta tata kelola pendidikan. Tetapi, teknologi Blockchain saat ini sedang dalam sesi percobaan serta mempunyai sebagian permasalahan yang wajib dituntaskan tercantum kapasitas pemrosesan informasi yang terbatas, kerahasiaan data, serta kesusahan regulasi. Artikel ini menerangkan tentang kemampuan pelaksanaan teknologi Blockchain dalam akuntansi keuangan pendidikan pendidikan. Maka dari itu, penelitian ini mengusulkan desain framework bagi finansial pendidikan tinggi agar keamanan buku besar dapat ditingkatkan. Dalam jangka panjang, platform ini secara efisien bisa kurangi kesalahan dalam pengungkapan serta manajemen laba, tingkatkan mutu data akuntansi pendidikan serta kurangi asimetri data. Metode analisis dengan perhitungan skor SUS terhadap sistem Blockchain akuntansi menunjukkan 85, sehingga framework ini termasuk dalam kategori Net Promoter. Hasil akhir penelitian ini mampu mengoptimalkan finansial keuangan pada pendidikan tinggi dengan menggunakan Blockchain. Indonesia is entering the 4.0 revolution, which brings many changes in all fields, including technology. The most extensive new technology is decentralized with transparent, convenient, permanent, and irreplaceable characteristics, commonly known as Blockchain. Blockchain has been applied in all fields, especially in the field of technology. But Blockchain technology is currently still in the pilot stage which has some issues and needs to be resolved. These include regulatory difficulties, limited information processing capacity, and data confidentiality. This article describes the ability to implement Blockchain technology in educational, financial accounting. Therefore, this study proposes a framework design for higher education finance to improve the security of the ledger. In the long term, this platform can efficiently reduce disclosure and earnings management errors, improve the quality of educational accounting data, and reduce data asymmetry. The analysis method by calculating the SUS score against the accounting Blockchain system shows 85, so this framework is included in the Net Promoter category. The final result of this research can optimize financial finance in higher education by using Blockchain.

Value-based Procurement and Agency Problems in Triadic Healthcare Relationships

This paper adopts an agency theory perspective to analyze a medical devices procurement triad consisting of a centralized purchasing unit, a medical unit of a hospital and an external medical device supplier. Through an in-depth case study of this triad, we examine agency issues and how they hinder the governance of triad-level outcomes i.e., value-based procurement. Our findings contribute to agency theory by positing that each triad member may pursue individual goals creating goal incongruence not as a result of opportunism but rather caused by role-based norms and incentive structures. Furthermore, information asymmetry in triads should be approached as a multilateral phenomenon when all triad members are boundedly rational actors possessing limited information processing capacity and thus suffering from specialized information and hidden (bilateral) actions of the other triad members. Finally, we find social factors such as power asymmetry and institutionalized mindset of unit price myopia to moderate the effects of information asymmetry and goal incongruence on triad-level governance. These factors together appear to curtail moves towards more outcome-based contracts and hence value-based procurement.

The study effect of focus of Attention instructions on motor skills learning: Difference in children’s learning process

The limited information processing capacity of individuals forces coaches in various sports to turn their attention to the main and important parts of the movement by providing instructions. One of the most important factors in the effectiveness of instructions is to focus on individual. It is very important to pay attention to this issue in children. By study the effects of instructions of attention on children's free-throwing learning skills, this study will help determine which type of instructions of attention are most useful for children. Tools and Methods: In this quasi-experimental study, It is chosen 42 girl students randomly who aged 9 to 11 years old in 18 district of Tehran and divided in three groups: internal focus attention, external focus attention, and control. After introduction the primary instructions and watching instructional movie related to basketball free throw, the participates thrown five times in test way then in acquisition phase, made 100 attempts in two sessions during two sequencing days. Each session included two blocks of 10-attempts and recovery time in 2 minute among blocks. The retention test included two blocks of 10-attempt that token 48 hours after last acquisition session. It is used covariance analysis test (3(group)* 10(throw)) in acquisition phase and LSD test to analyze the data. Resuit: The result showed that the internal focus attention group performed better than the control group in acquisition phase (P = 0.012), there isn’t significant difference between external focus attention group's mean (P = 0.084). also there isn’t significant difference between internal focus attention group's mean and external one (P = 0.401). In other words, internal focus led to an improvement in basketball throwing performance in children at the acquisition stage. The aim of this study was to investigate the effects of focus instructions on motor skills learning in children. The results of free throw performance scores did not show any significant difference between the groups during retention, but showed the advantage of using internal attention in the acquisition stage. A theoretical understanding of how different instructions can have practical implications for teachers and educators in helping learners for acquire skills, and changes in performance and learning processes depend on both task and performance, and no definitive conclusion can be drawn as to which The type of focus is useful for children's learning, and educators should take on the role of facilitator in guiding learners, regardless of the type of focus provided in different areas of learning.

Information Inertia and Limited Information Processing Capacity in Selecting Index ETFs

We investigate the role of information inertia and limited information processing capacity in creating an anomaly in the US index ETF industry. We fi nd that tracking errors and long-term returns are significant and consistent predictors of future returns, while there is little evidence that investors' flows are sensitive to them. In line with this finding, we provide a trading strategy that chases small tracking errors, which outperforms the equal-weighted portfolio of all S&P 500 index ETFs by 1.65% annually over 2003-2020. Mutual fund managers who just joined the fund are more likely to switch to better index ETFs than existing managers, suggesting investors face information inertia. Unsophisticated investors have limited information processing capacity as index ETFs held by more institutional investors deliver higher returns. Overall, our results suggest that the anomaly in low-return and low-tracking error sensitivity in the index ETF industry can be explained by information inertia and limited information processing capacity.

Competitive Attention, Superstars and the Long Tail

We propose a model of competitive attention based on two key premises: i) People have limited information processing capacities and ii) consideration sets are formed according to relative salience. The equilibrium predictions we obtain can help to understand, and connect, diverse empirical phenomena, such as the Paradox of Choices, the Power Law dispersions of key market data (sales, profits, online clicks,...), the relation between advertising expenditures and market shares, the evolution of market inequality, or why evidence favoring a “Long Tail” effect is mixed at best.

Poor resolution at the back of the tongue is the bottleneck for spatial pattern recognition

Spatial patterns presented on the tongue using electro-tactile sensory substitution devices (SSDs) have been suggested to be recognized better by tracing the pattern with the tip of the tongue. We examined if the functional benefit of tracing is overcoming the poor sensitivity or low spatial resolution at the back of the tongue or alternatively compensating for limited information processing capacity by fixating on a segment of the spatial pattern at a time. Using a commercially available SSD, the BrainPort, we compared letter recognition performance in three presentation modes; tracing, static, and drawing. Stimulation intensity was either constant or increased from the tip to the back of the tongue to partially compensate for the decreasing sensitivity. Recognition was significantly better for tracing, compared to static and drawing conditions. Confusion analyses showed that letters were confused based on their characteristics presented near the tip in static and drawing conditions. The results suggest that recognition performance is limited by the poor spatial resolution at the back of the tongue, and tracing seems to be an effective strategy to overcome this. Compensating for limited information processing capacity or poor sensitivity by drawing or increasing intensity at the back, respectively, does not improve the performance.

Investor Limited Information Processing Capacity: Industry Level Analysis

Investor has cognitive limitation in the form of limited information-processing capacity relative to the amount of information available to them. This limitation force investors to optimize their valuable resources by focusing only to a specific set of information based on their unique preference. Since different industry have different information complexities, different industries will have different investor segment in terms of investor number, investor sophistication, and investor speed to gather and to comprehend information from other industry. We investigate the prevalence of investor’s limited information-processing capacity in Indonesian stock market using autoregressive model. We used monthly data from 31 December 1999 to 30 September 2015 to identify whether there are industries that consistently lead other industries. We find only mining industry return, with small market capitalization only 3.3% relative to total Jakarta Composite Index market capitalization, which consistently leads Jakarta Composite Index return for one to two months.

Active and Passive Information Acquisition: Application to Financial Markets

Investors overreact to salient information and neglect nonsalient information. I conjecture that this is the result of cognitively effortful information processing with limited processing capacity and heterogeneous processing costs. On the one hand, the allocation of the limited information-processing capacities is subject to the means and objectives of the decision maker, that is, (active) goal-driven attention. On the other, the salience or visibility of news affecting the processing cost, that is, external (passive) stimulus-driven attention. I model this by extending the framework of rational inattention by heterogeneous marginal costs of the information processing, which are dependent on the visibility of the piece of information. This model of information processing is applied to a simple asset-pricing model. The main findings are that higher visibility of a piece of information leads to a lower risk premium, more informativeness, and a stronger reaction of the asset price to the piece of information. Furthermore, there exists a visibility threshold beyond which the investor decreases the attention capacities spent on a piece of information. Finally, investors will neglect a piece of information if it is below a threshold of visibility. Explicitly modeling the relevant aspects of information acquisition of a decision maker helps make sense of contradictory empirical results and can be useful for more structural estimations in the future.

Quantifying Motor Task Performance by Bounded Rational Decision Theory.

Expected utility models are often used as a normative baseline for human performance in motor tasks. However, this baseline ignores computational costs that are incurred when searching for the optimal strategy. In contrast, bounded rational decision-theory provides a normative baseline that takes computational effort into account, as it describes optimal behavior of an agent with limited information-processing capacity to change a prior motor strategy (before information-processing) into a posterior strategy (after information-processing). Here, we devised a pointing task where subjects had restricted reaction and movement time. In particular, we manipulated the permissible reaction time as a proxy for the amount of computation allowed for planning the movements. Moreover, we tested three different distributions over the target locations to induce different prior strategies that would influence the amount of required information-processing. We found that movement endpoint precision generally decreases with limited planning time and that non-uniform prior probabilities allow for more precise movements toward high-probability targets. Considering these constraints in a bounded rational decision model, we found that subjects were generally close to bounded optimal. We conclude that bounded rational decision theory may be a promising normative framework to analyze human sensorimotor performance.

Information acquisition and residential electricity consumption: Evidence from a field experiment

This article uses hourly data on household usage of an in-home display (IHD) in a randomized field experiment to investigate how acquiring information from IHDs affects electricity usage of households. Providing IHDs, which enables households to see a graph of their half-hourly electricity consumption in real time, is a promising policy intervention that corrects for biases associated with inattention and limited information-processing capacity by promoting salience and learning. The immediate effect of providing an IHD is heightened household attention to information on consumption, and the repetition of attention is expected to improve households’ capacity to process information.The estimation results of a simultaneous equation model with discrete choice of hourly IHD usage and continuous hourly consumption of electricity of 501 households living in a southern area of Kyoto, Japan, over 36 days in summer 2012 provide evidence on the effects of real-time information feedback over time. The cumulative usage of IHDs reduced hourly electricity consumption of “energy-using” households whose electricity consumption before the experiment had been far higher than other households. Contrary to the energy-conservation literature, the cumulative usage of IHDs raised electricity consumption of “energy-saving” households whose electricity consumption had been relatively modest before the experiment. This may be due to a “boomerang effect,” which raised electricity usage of well-informed households whose electricity saving had exceeded the optimal saving before obtaining information about their actual usage.

The Application of Logical Tools in Project-Based Classrooms

The purpose of this paper is to investigate the application of logical tools such as inference trees and columnar data flow diagrams in the information system (IS) analysis and design context. Seventeen students at an institution of higher education were observed during the design and analysis of information systems and their experiences were evaluated through a focus group interview, observations and documents analysis. This research was based on a qualitative, action research approach (Yin 1994; Merriam 1998). The most important findings were: the columnar method empowers students’ motivational and cognitive skills enhancing their vision and system design skills; inference trees improve detection and correction of reasoning errors overcoming students’ limited information processing capacity.

Induced uncertainty, market price of risk, and the dynamics of consumption and wealth

In this paper we examine the implications of model uncertainty or robustness (RB) for consumption and saving and the market price of uncertainty under limited information-processing capacity (rational inattention or RI). First, we show that RI by itself creates an additional demand for robustness that leads to higher “induced uncertainty” facing consumers. Second, if we allow capacity to be elastic, RB increases the optimal level of attention. Third, we explore how the induced uncertainty composed of (i) model uncertainty due to RB and (ii) state uncertainty due to RI, affects consumption and wealth dynamics, the market price of uncertainty, and the welfare losses due to incomplete information. We find that induced uncertainty can better explain the observed consumption-income volatility and market price of uncertainty – low attention increases the effect of model misspecification.

Application of Big Data Analysis Method in Supply Chain

Big data has the characteristics of large scale, many kinds, fast generation, high value but low density. Big data application is the use of data analysis methods, from the big data mining effective information, to provide users with auxiliary decision-making, to realize the process of large data value. In the era of limited information processing capacity, the world needs data analysis, but the lack of tools used to analyze the collected data, so the big data analysis method came into being. Big data analysis has changed a lot of business areas, especially in the supply chain management of the biggest change in the application. This paper mainly introduces the application of big data analysis method and the application in the supply chain, and further expounds the future development of big data analysis method in the future.

A cognitive model of converting scientific evidence on treatment effects into prognostic information in clinical practice

Rationale, aims and objectives: Little is known about the cognitive processes of how population-based scientific evidence is utilized in the treatment of individual patients. The present work aims to outline a formalized framework of converting scientific evidence on treatment effects into prognostic information in clinical practice and describes a pilot study for illustration of how the framework can be used in research.Method:The proposed theoretical framework considers the human mind as a limited capacity information processing system. This system codes external stimuli into internal inputs, which are then processed through several steps towards an evidence-informed clinical output. A small-scale pilot study including 130 laypersons was performed. Participants were asked to make probabilistic prognostic statements based on a fictional study (“evidence”) and a fictional case vignette (“clinical context”).Results: Several cognitive processes were defined, including coding of the attributes of the evidence and the clinical context, integration of the information in a similarity-dissimilarity matrix and calculating the prognostic output. Frequently required operations, such as extrapolation, individualization, particularization, generalization and absolutization of the information were outlined. The presented framework was shown to be useful in analyzing and interpreting the pilot study data.Conclusions:The postulated model holds great potential for investigating cognitive processes included in evidence-informed clinical care.

Board Effectiveness and CEO Pay: Board Information Processing Capacity, Monitoring Complexity, and CEO Pay-for-Performance Sensitivity

We have developed an information processing theory of board effectiveness to examine board-chief executive officers (CEOs) pay relations. We theorize that CEO pay reflects the information processing context of boards. Boards have limited information processing capacity and therefore prefer to use outcome-based CEO pay when they have difficulty in processing information for monitoring their CEOs. Using a longitudinal sample of Standard and Poor's (S&P's) large-, medium-, and small-cap manufacturing firms in the United States from 1998 through 2005, we found support for our theory. Large boards and boards in less complex monitoring contexts tend to link CEO pay less tightly to firm performance by providing less stock-based incentives, and the tendency of large boards to decrease outcome-based CEO pay is even greater when boards are not busy or when boards are in less complex monitoring contexts. © 2015 Wiley Periodicals, Inc.

Information Acquisition, Dynamic Pricing of Electricity, and Conservation Requests: Evidence from a Field Experiment

This article uses panel data on how frequently households use in-home displays (IHD) in a randomized field experiment to investigate how acquiring information from IHDs affects electricity usage of households facing either dynamic pricing of electricity or conservation requests. Providing IHDs, which enables households to see a graph of their half-hourly electricity consumption in real time, is a promising policy intervention that corrects for biases associated with inattention and limited information-processing capacity by promoting salience and learning. Contrary to the energy-conservation literature, I find that IHD usage consistently raised electricity consumption of households. This perverse impact of IHD usage on energy conservation increased through learning over time as the experiment proceeds. However, an interactive effect of IHD provision and dynamic pricing implies that providing an IHD together with pecuniary incentive schemes could be effective in energy conservation.