Memory, Retrieved Context, and Bias in Management Earnings Forecasts.

This article investigates how the retrieval of memories related to economic recessions influences the bias in management earnings forecasts, using the 2008 financial crisis as a natural trigger for memory recall. Analyzing 3,678 annual earnings forecasts issued by 466 U.S. CEOs from 2002 to 2018, the study finds that CEOs with more long-term memories of leading firms through past recessions and those experiencing more intense recent memories of local unemployment during the crisis embed greater pessimism in their forecasts after 2008. The findings support psychological theories including the retrieved-context theory, availability heuristic, and recency effect, and show that this increased pessimism typically lasts about three years before returning to pre-crisis levels, particularly among CEOs with more recession experience. Additional analyses suggest that memory retrieval does not affect forecast accuracy but is associated with reduced forecast frequency, and that the effects are more pronounced for CEOs with lower managerial ability and those managing more complex firms.