Primacy or Recency? A Study of Order Effects When Nonprofessional Investors are Provided a Long Series of Disclosures

ABSTRACT: Firms have the incentive to aggregate multiple pieces of good and bad news together in a consistent direction (i.e., all positive news or all negative news) and disclose it either sequentially or all together (simultaneously) in order to reduce the risk of stock price volatility or large stock price declines. Unfortunately for investors, disclosure patterns such as these may result in order effects, which reduce decision quality. My paper examines the results of three experiments in order to determine: (1) which order effect, if any, results when long series of consistent direction voluntary disclosures are made, and (2) if the sequential or simultaneous nature of the disclosures exacerbates any order effect found. The first two experiments use undergraduates as participants, while the third experiment uses actual nonprofessional investors to try and tease out explanations for the experimental findings. I find recency effects for all conditions in all experiments, and significantly greater recency effects for the sequential conditions relative to the simultaneous conditions in the 40-cue experiments. Additionally, results of the supplemental experiment provide evidence that nonprofessional investors can be information seeking and active in their investment decision-making, which can prohibit attention decrement. Findings contribute to the voluntary disclosure, judgment and decision-making (JDM), and belief revision literatures, as well as highlight the context-specific nature of the belief-adjustment model’s predictions.