Asymmetric Use of Information About Past and Future: Toward a Narrative Theory of Forecasting

AbstractStory-telling helps to define the human experience. Do narratives also inform our predictions and choices? The current study provides evidence that they do, using financial decision-making as an example of a domain where, normatively, publicly available information (about the past or the future) is irrelevant. Despite this, participants used past company performance information to project future price trends, as though using affectively laden information to predict the ending of a story. Critically, these projections were stronger when information concerned predictions about a company’s future performance rather than actual data about its past performance, suggesting that people not only rely on financially irrelevant (but narratively relevant) information for making predictions, but erroneously impose temporal order on that information.

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