The Accounting Review Vol. 81 No. 2 2006
Using Counter-Explanation to Limit Analysts' Forecast Optimism
Abstract
Prior research demonstrates that forecast optimism is, in part, a consequence of analysts' cognitive reactions to the scenarios managers use to communicate future plans. In two experiments, we examine whether counter-explanation (explaining why managers' plans could fail) reduces scenario-induced optimism. We find that when compared to analysts not asked to generate counter-explanations, analysts who complete the relatively easy task of generating few counter-explanations make less optimistic forecasts, but analysts who complete the relatively difficult task of generating many counter-explanations do not. Results demonstrate the usefulness of a cognitive, theory-based mechanism for reducing forecast optimism and suggest a boundary condition for the use of that mechanism.
- DOI
- 10.2308/accr.2006.81.2.377
- Volume
- 81
- Issue
- 2
- Pages
- 377-397
- Language
- en
- Sources
- openalex bibtex:phds-export.bib crossref