A study by the researcher at the Milenio MIPP Institute, Marcela Valenzuela, analyzes how information overload affects investors’ ability to process financial news, increasing market risk and risk premiums.
In a world saturated with information, investors must filter and process large volumes of data to make informed decisions. However, human cognitive capacity has a limit, and information overload can result in inaccurate decisions and increase market risk.
The flow of information has grown exponentially with the advancement of technology and the digitalization of the media. Investors now have access to an unprecedented amount of data in real time, which poses significant challenges for financial decision-making. The ability to discern between relevant and irrelevant information becomes essential, as excess information can lead to greater uncertainty and errors in decision-making.
The relevance of studying the effects of information overload is magnified in the current context, where access to information is instantaneous and abundant. News platforms, social media, and online data sources constantly bombard investors with updates, analysis, and opinions, making it difficult to make sound financial decisions.
The relationship between the amount of information and cognitive processing capacity has been studied extensively in the field of cognitive science. Previous studies have shown that too much information can lead to cognitive overload, making it difficult to make accurate decisions. This phenomenon has been documented in various contexts, and it is relevant to study the effects in the financial market, where investors are constantly faced with a massive flow of news.
Historically, investors have relied on a combination of fundamental and technical analysis to make informed decisions. With the proliferation of information sources, from social media to breaking news, the task of discerning relevant information from irrelevant information has become increasingly complex.
In this context, the researcher at the Milenio MIPP Institute, Marcela Valenzuela, together with the academics Alejandro Bernales and Ilknur Zer, published the study “Learning from news, information flow, and financial markets”. The objective of this study is to investigate how information overload affects the financial market.
Find the full article on this study in Miradas MIPP here
MIPP Chile 2024