Charting from past to future: Frames, graphs and forecasts

Changes in judgments or decisions resulting from different ways of presenting information are called framing effects. The primary purpose of this dissertation was to determine if different ways of showing the same information in graphs or charts could produce framing effects similar to those previously shown to result from different verbal descriptions. Three experiments investigated how different ways of showing stock price information influenced stock price forecasting and share trading. In Experiment 1, 30 Introductory Psychology students at Carleton University were each shown 30 stock charts which systematically varied in time scale (X-axis = one week, one month or one year of previous share prices), price scale (Y-axis = ;Experiment 3, a partial replication of Experiment 2, examined whether experienced traders performed differently than the undergraduate students in forecasting stock prices and shares trading. Twelve traders with at least one year experience participated in the study, undertaking the same forecasting and trading tasks as did the undergraduates in Experiment 2. There was no significant difference between experienced traders and naive students in forecasting stock prices or in share trading.;The results of all three experiments are interpreted from the perspective of Prospect Theory, and their implications discussed.;Experiment 2 examined the influence of chart framing effects on forecasts in more detail, and also explored the influence of chart framing on share trading. Forty eight undergraduate students participated in this study. As in Experiment 1, they were asked to forecast the next five days of stock prices and to trade shares after seeing stock price charts that varied in time scale, price scale, and price trend. They were also asked to assume they owned shares and cash, and told the price they bought each stock they held (the entry price). Forecasting results largely replicated those of Experiment 1, again showing history and asymmetry effects. Share trading was also influenced by time scale. Participants bought more shares when they saw an up trend, sold more shares when they saw a down trend, and held more shares when they saw a flat trend. They also showed a consistent asymmetry in share trading, selling more shares when they saw a down trend than buying shares when they saw the mirror-image up trend. Trading was influenced by entry price when participants saw a downward trend, but not when they saw a mirror-image upward trend.