Ding!
A busy stock investor is walking down a Portland street when an alert chimes on her cell phone. She checks her phone and sees the headline: “XYZ Company quarterly earnings exceed analysts’ expectations.” The investor skims the related press release and reads that the company received a one-time $1.5 million insurance settlement and, without that income, would not have met expectations.
Ding!
The investor’s friend texts her to ask if she’s available that afternoon for a coffee. She responds affirmatively.
Distracted by the text, the investor focuses on the positive headline rather than thinking critically about how the firm managed to exceed expectations. She quickly places a “buy” order for 2,500 shares.
A new study from The School of Business at Portland State University found smartphone users such as the fictional investor above can not only succumb to distracted driving, they can also become a victim of distracted investing.
The study, “The effect of mobile device use and headline focus on investor judgments,” was published in the Journal of Accounting, Organizations and Society.
PSU Assistant Professor Amanda Winn and colleagues wrote that when it comes to investment decisions, a financial article’s positive or negative headline can have a greater impact on someone reading it on a mobile device (such as a smartphone) than on someone reading it on a computer. This is due to the nature of smartphone use, according to the study.
“We expect that the headline focus presented to investors in a press release has the potential to change investors’ judgments, especially when they are in a distracted frame of mind,” the study stated.
Smartphones can cause a distracted frame of mind because of the large number of notifications or other interruptions the user receives while performing a task, the researchers wrote. Due to these distractions, a smartphone user might focus on specific parts of a financial article, such as the headline, and miss important additional information before making an investment decision, they concluded.
“We expect investors will be more susceptible to cognitive shortcuts, such as focusing on summaries that get at the ‘gist’ of the financial information rather than developing a more complete understanding of all the information present,” the study said.
When the study participants used a computer, their decisions were not affected by a positive or negative headline. The researchers also concluded that investors’ judgments do not differ when a headline is written in a general nature (“XYZ Company reports earnings”), regardless of what device is used to read it.
“Taken together, these results support our hypothesis that use of a mobile device increases the influence of a specific headline on investors’ judgments,” they wrote.
Co-authors of this study include Stephanie M. Grant from University of Washington and T. Brown from University of Illinois.