Perception On Stock Price: Reflecting Cognitive Limitation

The core competitiveness of a nation lies in finance while the core of finance depends on the accurate estimation of the effect of psychological prejudice on pricing.the Nobel Prize winner in Economics—Kahneman and his systematic error theory and prospect theory, and the theory of the emotion-specific influences on judgment stimulated me to explore the interrelation of cognition, emotion and over-confidence and their respective mechanisms, and found that highlight is the key for producing them. Hence, I intended to prove people are possessed of cognitive limitation by three ways: firstly perceptual illusion exists in the mind of people. Highlight (physics, familiarity, background highlight) leads to obvious overvalue (experiment 1); Secondly Highlight produces emotion: emotion disturbs cognition and judgment(experiment 2) ; Thirdly people fail to perceive their perceptual illusion, emotional disturbance, otherwise, show overconfidence (experiment 3); furthermore, quietness can lessen cognitive limitation (experiment 4) ; I conducted study by linking highlight, emotion, over-confidence and pricing, and drew the conclusions as follows:Highlight (physics, familiarity, background highlight) leads to obvious overvalue. For new shareholders, people with low academic degree, and females, the rate of perceptual illusion caused by highlight is fairly high.High highlight (positive) is accompanied by high optimism, and leads to positive overvalue, while high highlight (negative) is accompanied by pessimistic mood, and leads to negative overvalue.The estimated value with big fluctuation in instantaneous emotion brings about big amplitude of fluctuation, and high turnover velocity.High highlight generates high over-confidence, with high over-confidence and high estimated value over familiar shares. Old shareholders, people with high academic degree, and males tend to have fairly high over-confidence.High over-confidence is generally accompanied by over-optimism. People with high over-confidence tend to give overvalue.People with high degree of quietness are obviously less affected by highlight, emotion and over-confidence, and with high level of calibration.People with high degree of quietness feature low turnover rate, while people with low degree of quietness are just the opposite in these five aspects.The results indicated that firstly it is the key that perceptual highlight which produces cognitive bias, emotional bias and interaction between them. Secondly cognitive limitation exists in the mind of people, but people fail to perceive it, otherwise, show overconfidence that is the root of the failure of judgment. Thirdly it is necessary for people that perceive their cognitive limitation by only way of quietness.