How the amount of information and perceptual quality of financial information affect decisions: An eye-tracking and EEG study

Samir Karzazi

Student thesis: Master thesis


Executive summary: Accounting standard setters and behavioral accounting researchers have lately focused on the quality of financial information and the still-rising volume of information in annual reports. Various studies have been conducted, in order to investigate how the quality of information affects investor’s decisions; however, very little is done in terms of investigating how the amount of information affects these decisions. Previous studies have used traditional research methods to address these issues, such as surveys and observational research. Lately, the research field within economics has met neuroscience and psychology; this has led to two new, highly-successful research fields: neuroeconomics and neuromarketing. These fields draws on the knowledge of the human brain to address questions related to economic decision-making. So far, very little has been done to establish this type of research within the field of behavioral accounting, known as neuroaccounting. This thesis uses methods from neuroscience and psychology, combined with methods from traditional accounting research, to investigate how the amount of information and perceptual quality of financial information affects decisions. The results from this thesis show that when the amount of financial information is low, investors provide more extreme valuations. This means that when the company performance is good, the valuations are higher, and when the company performance is bad, the valuations are lower. The main reason for this valuation behavior is the cognitive load, during the information processing, which was measured using a well-established eye tracking technology and electroencephalography. Lower cognitive load acts as a heuristic cue, which convinces the investor that the information is more reliable and sufficient, leading to more extreme valuations. Results from a traditional survey conducted at the same time confirm this theory. The change in the perceptual quality was found to have no significant impact in either the valuations or the cognitive load. Further results show that novice decision-makers generally have a higher cognitive load than experienced decision makers; however, no difference was found in their reactions to the different amounts of information.

EducationsMSc in Auditing, (Graduate Programme) Final Thesis
Publication date2014
Number of pages131