Information quantity, information consistency, and the confidence of unsophisticated investors

Abstract

Advances in technology, as well as regulatory and legislative actions (e.g., Regulation Fair Disclosure, Sarbanes-Oxley, new NYSE and NASDAQ requirements) have led to an increase in the quantity of information available to the public. In this dissertation, I describe two experiments that examine the effects of information quantity and consistency (holding information quality constant) on the judgments and trading behavior of unsophisticated investors. I find that increasing the quantity and the consistency of information causes unsophisticated investors to show greater confidence and trading aggressiveness. This relation is not explained by an increase in cognitive effort, suggesting a direct effect of information quantity on confidence. The effect of increased quantity reduces investors' expected and actual wealth in simulated experimental markets, while the effect of consistency on wealth depends on whether the additional, low-quality signals are consistent or inconsistent with the high-quality signal investors receive. Results highlight possible negative consequences of increased disclosure, and suggest directions for future experimental and archival research.