Information Illusion: Different Amounts of Information and Stock Price Estimates

We initiate a questionnaire-based stock price forecast competition to analyze participants' perception of different amounts of information and the impact on stock price estimates. The results show that providing more information increases the perceived amount of relevant information but does not alter participants' stock price estimates and their accuracy. Individual participants' characteristics, such as gender, financial knowledge, or overconfidence, do not affect these findings. This means that the added information acts as placebic information and leads to information illusion. However, the added information has an impact on individual expectations about the stock price forecast competition itself and leads less overconfident investors to decrease their expectations regarding payoff and chances to win a prize. Our findings provide implications for practitioners and researchers alike. Both regulators and policy makers should consider that placebic information can significantly impact investors' perception, and, therefore, regulation on information that is provided to retail investors should focus on relevant and avoid irrelevant information. Researchers should be aware that placebic information asymmetrically influences expectations of participants in experiments who show different levels of overconfidence.