Abstract for: Illuminating the Logic of Stock Management Failure – How Much Does the (Mis)Understanding of Accumulation Explain?
The stock management (SM) problem is of high relevance for a broad range of decision makers in society, business, and personal affairs. Although in some areas highly sophisticated models and control concepts have been developed, human stock management performance is lamentable. One recent explanation for this failure is offered by a stream of research, which finds evidence for widespread and persistent deficits in understanding how flows accumulate in stocks. This misunderstanding of accumulation (MoA) is proven even among well-educated adults. This research uses laboratory experiments to test the hypothesis that the better people understand accumulation, the higher is their performance in SM tasks. Correlation and univariate regression analysis show that MoA indeed contributes to explaining performance differences in stock management. However, the effect is moderate and vanishes almost completely when intelligence and economic knowledge are included as control variables in a multiple regression model. The value of this paper lies in explicitly testing the relation of MoA and SM, whose existence is widely taken for granted. Future research could explore a broader set of control variables and should increase the number of cases to allow for advanced theory testing using, for example, structural equation modelling.