Paul Andreassen's MIT experiments

Paul Andreassen’s MIT experiments demonstrated that more financial news can make investors worse at choosing stocks. In a late-1980s study, business students who saw only changes in stock prices did better than students given those same changes alongside a constant stream of explanatory news. The contrast supports a central distinction in the book: information can add to what a group knows, but vivid, repeatedly emphasized interpretations can also prompt people to overreact in the same direction and weaken collective judgment.

Experimental Design

In the late 1980s, Andreassen divided business students into two groups. Each group selected a portfolio and had enough information about its stocks to form what seemed to be a fair price. Both groups could buy and sell. One saw only whether each stock’s price had risen or fallen; the other saw the price changes and a continuing flow of financial news that purported to explain them.

The experiment separated access to price movements from access to commentary about those movements. The news group had more material to consider, but its members were not thereby better informed in the practical sense that mattered: their investment decisions were less successful. The students who lacked the explanatory stream could attend to the prices against the valuations they had formed when choosing their stocks.

Results and Mechanism

The less-informed group did far better than the group receiving the news. Andreassen’s proposed explanation was that news reports tend to exaggerate the significance of individual developments. A falling stock could be framed as evidence that worse trouble was coming; a rising one could seem to promise further gains. Students exposed to this stream bought and sold much more frequently, treating each item as unusually consequential.

The difference was not simply between having information and having none. Both groups could see price changes, while only one received a running interpretation of them. The experiment therefore highlighted how the form in which information arrives can influence judgment: commentary may direct attention away from the underlying considerations used to value a stock and toward each new explanation as a reason to act.

Place in the Book’s Argument

The study appears in a discussion of financial news during the 1990s stock-market bubble. The book describes CNBC’s nonstop market coverage and a study in which prices and trading volume reacted almost immediately to positive reports. That example concerns investors responding to the fact that a report had appeared, anticipating that others would trade on it; Andreassen’s experiment addresses a related but distinct problem, the tendency to overreact to news content. Together, the cases show how a shared stream of market information can shape behavior rather than merely describe it.

The broader argument is that groups need a balance between information shared by everyone and information held privately by individuals. If a common report pushes many people toward the same interpretation, their judgments become less independent, and the collective benefit of diverse perspectives is reduced. Andreassen’s experiment thus serves as evidence for the book’s warning that an abundance of financial news is not automatically an abundance of useful knowledge: how information is framed and received can matter as much as how much is available.