Behavioral research - Brunswick Lens Model PDF

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Brunswick Lens Model...

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Behavioral research has been used to investigate several decision-making processes, understand decision making process and also to improve decision making. While capital market research investigates the aggregate reactions of investors to particular events, behavioral research examines how different individuals react to various accounting information disclosures i.e. predict what a person will do when provided with particular accounting information. Brunswik Lens Model, developed by Brunswik is used by several researchers to explain behavioural research. The lens model made it possible for the experimenter to examine the patterns of cue utilization by the subjects. (Deegan, 2009). A person perceives the environment through a set of imperfect cues and acts accordingly. Libby (1981) provides an insight that the Lens model structure is general and can be applied in various decision-making scenarios. The right-hand side of the model shows how the individual uses cues to make ultimate decision. On the other hand, the left-hand side (event) of the model shows the relationship between the actual outcome and the associated cues. The Lens Model explicitly considers three level of analysis: inputs (uses of various cues), the decision process and outputs (ultimate decisions) (Deegan, 2009). In Brunswik Lens Model, the ‘objective of an investor’ (event) here is to make profit or avoid loss out of the purchase or sales of shares of JB Hi-Fi. At input level, how the particular cues, their form and nature, are used in decision making is considered. These cues are imperfect information and may not be convincing, and thus investors choose the cues that investors think is reliable and related to the objective. Here in this case, the particular cues could be the historical and expected price of the share, expected profit, expected dividend, ratios like Earning per share (EPS), Price Earning (P/E) ratio. Here the cues can be interrelated with each other. Various statistical models can be applied to determine the weighting or importance of the above cues to the event of success, i.e. return from investment. If the cues do not contribute to the objective, it will be provided with a zero weight....