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In media's descriptions of stock-market activity, metaphors can make a big difference, study suggests

July 1, 2005

For more information, contact: Benjamin Haimowitz,

July 18, 2005 -- When a financial journalist reports that the Nasdaq index "climbed" to a certain level, does it matter that the same news could have been delivered in a slightly different way -- for example, by reporting that the index "increased" to that level?

Simply a matter of shuffling synonyms, one might be excused for thinking.

But, subtle though the difference may be, it is likely to have a demonstrable effect on investors, according to new research to be presented at this year's annual meeting of the Academy of Management (scheduled for Honolulu, Aug.7-10)

The difference, researchers say, has to do with the way the human mind makes sense of metaphors: "climbed" is what they call an agent-metaphor, because it compares the Nasdaq's movement to that of a person or an animate being; "increased," by contrast, is simply a statement of fact, without any such implied comparison.

When stock movements are described with agent-metaphors, the new research finds, it conveys an expectation that today's trends will continue tomorrow.

That expectaion is significantly greater with agent-metaphors than with descriptions containing either no metaphors or object-metaphors, report the papers authors, Michael W. Morris and Daniel R. Ames of Columbia University; Oliver J.

Sheldon of Cornell University; and Maia J. Young of UCLA. Object-metaphors-- such as "fell" or "drifted" -- describe stock movements in terms appropriate to inanimate objects.

Explains Prof. Morris: "When active verbs like 'climbed,' 'sprinted,' or 'leaped' are applied to stock movements, we tend to respond to these metaphors in the way that we are programmed to interpret human actions -- namely, as indications of volition and future behavior.

"Our minds are not wired to understand random systems, so we often impose patterns where they may not exist. In sports, expressions like "hot hand" in basketball or "hot bat" in baseball convey the notion that a player's chance of success is greater after an immediately prior hit than after an immediately prior miss, a belief that persists even though extensive scientific research has found little or no basis for it. Our study suggests that agent-metaphors foster a similar (and equally dubious) expectation of continuity in the stock market.

"And that expectation," he adds, "can affect people's buy and sell decisions."

The research also suggests that the choice of agent-metaphors or object-metaphors to describe market movements is not just a matter of chance. Says Morris:

"Agent-metaphors are more likely to be used to describe rising markets than falling markets, because our brains associate upward trajectories with animacy and motive power, whereas we associate downtrends with inanimate objects and their obedience to the pull of gravity.

"Our findings suggest that agent-metaphors foster people's expectations that market trends will continue, whether those trends are upward or downward.

But, since agent-metaphors lend themselves more readily to ups than downs, there appears to be a built-in bullishness in the terms reporters or commentators use to describe markets."

The paper builds on a large body of scientific research in psychology and cognitive science, work that Morris and his colleagues are among the first to apply to financial markets. For example, the authors cite celebrated experiments in which J. Y. Lettvin and colleagues got frogs automatically to flick their tongues at stimulus displays imitating the trajectory of a fly.

In their own research, Morris and his co-authors found that charts graphically depicting the trajectories of stock movements, but not numerical tables depicting the same activity, reinforce the effect of agent-metaphors in engendering expectations of trend continuity.

As the paper puts it: "People making sense of stock charts may be in a predicament something like that of the frogs in Lettvin's lab, victims of their automatized responses to trajectory cues."

The paper's findings derive from a series of experiments Morris and his colleagues performed to probe both the effect of agent-metaphors and what leads financial reports and commentators to employ them in the first place.

In one study, 64 college students were presented with six pages, each page presenting information on the performance of the Nasdaq index on a particular day. There were three up-days and three down-days; on each page was a depiction of the index's activity for one of the days, either in the form of a line graph or a table of values at 15-minute intervals, accompanied by a one-sentence comment attributed to a stock-market analyst on an end-of-the-day television program. The analyst's comments used either an agent-metaphor (such as "Today the Nasdaq leaped and bounded higher"), an object-metaphor ("After ricocheting back and forth all morning, the Nasdaq bounced higher"), or no metaphor ("Today the Nasdaq index showed increases near the close of the trading session").

The subjects were asked to predict, on a scale of 1 to 7, the next-day closing point relative to the current day's closing, with 1 meaning much lower, 4 meaning the same, and 7 meaning much higher. In the case of up-days, subjects' next-day predictions were substantially higher when analyst comments contained agent-metaphors than when they didn't; for down-days, the subjects'

predictions were substantially lower when analyst comments contained agent-metaphors than when they didn't. In addition, line graphs, but not tables of values, accentuated the effect of agent-metaphors in fostering these predictions of trend continuity, consistent with the idea that the trajectory-like shape of stock charts cues metaphoric processing.

Having demonstrated the significant effect of agent-metaphors on news recipients, Morris and his colleagues carried out several studies on the factors that lead stock commentators to use agent-metaphors or object-metaphors in the first place. For the first six months of the year 2000, a period in which indices were highly volatile but showed little or no overall movement, they combed the transcripts of the CNBC late-afternoon program "Business Central"; extracted all sentences having the Dow, Nasdaq or S&P index as subjects; and divided them into non-metaphorical, object-metaphorical, and agent-metaphorical. They found a strong positive correlation between agent-metaphors and index gains (that is, the greater the upward trend for the day, the more agent-metaphors) and a strong negative correlation between object-metaphors and index gains (the greater the downward trend, the more object-metaphors).

Despite the lack of overall movement in the market over these six months, the period came at the tail end of the phenomenal high-tech bubble of the 1990s.

To test whether the results of their experiment simply reflected high expectations for bullishness, the researchers performed a similar analysis for the bearish period October 30, 2000 - January 31, 2001, and got results similar to those for the earlier period. They carried out still another study, in which students acted as commentators, to rule out two other possibilities -- that use of agent-metaphors simply reflects wishful thinking or is evoked by trends perceived to be dramatic.

In conclusion, the authors consider how journalists' penchant for agentic description of uptrends may ultimately affect stock prices. "One possibility,"

they write, "is that investors may be led to believe uptrends are meaningful signals whereas downtrends are not. That is, up-days are more likely to be described agentically, and agentic descriptions then foster expectancies of continuance."

Expert investors, they add, may be less likely than inexperienced ones to be biased by the metaphoric language in their market news. As the paper puts it, "The costs of media metaphors may be borne chiefly by the investors on Main Street rather than those on Wall Street."

The Academy of Management, founded in 1936, is the largest organization in the world devoted to management research and teaching. It has close to 16,000 members in 90 countries, including some 10,000 in the United States.

The academy's 2005 annual meeting will draw more than 6,000 scholars and practitioners to Honolulu for more than 1,000 sessions on a host of issue relating to corporate organization and investment, the workplace, technology development, and other management-related subjects.

Media Coverage: The CNBC Effect by Lisa Scherzer. (Thursday, August 04, 2005).
The Economist. 7/23/05-7/29/05. Psychology and stockmarkets. (Saturday, July 23, 2005).
The Washington Post. Unconventional Wisdom Words That Matter By Richard Morin. (Sunday, July 31, 2005).
Voice of America. Does it Matter if Stocks 'Climb' Rather Than 'Bounce Back'?. (Tuesday, August 09, 2005).

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