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.
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Research Article| March 01 2006
Using Counter‐Explanation to Limit Analysts' Forecast Optimism
Susan D. Krische;
Online ISSN: 1558-7967
Print ISSN: 0001-4826
American Accounting Association
The Accounting Review (2006) 81 (2): 377–397.
Kathryn Kadous, Susan D. Krische, Lisa M. Sedor; Using Counter‐Explanation to Limit Analysts' Forecast Optimism. The Accounting Review 1 March 2006; 81 (2): 377–397. https://doi.org/10.2308/accr.2006.81.2.377
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