You Are What You’re Named

Adam Alter offers an example of what he calls the “linguistic Heisenberg principle,” whereby naming something changes our perception of it:

People generally prefer not to think more than necessary, and they tend to prefer objects, people, products, and words that are simple to pronounce and understand. In 2006, my colleague Daniel Oppenheimer and I investigated the performance of hundreds of stocks immediately after they were listed on the financial markets between 1990 and 2004. We discovered that companies with simpler names that were easier to pronounce received a greater post-release bump than did companies with complex names. (I also wrote about this phenomenon for the New York Post.)

The effect was strongest during the first few days of trading, when investors had little information about the stock’s fundamentals and were more likely to be swayed by extraneous factors. (We also ran a series of additional analyses to rule out the possibility that the effect was driven by different naming trends across different industries, company sizes, or countries, and the possibility that successful stocks seem to have fluent names merely because they’re mentioned more often in the media.) Even stocks with pronounceable ticker codes (e.g., KAR)—the letter strings that investors use to refer to each stock—outperformed those with unpronounceable ticker codes (e.g., RDO) in the short run. An investor who placed a thousand dollars in the ten most fluently named stocks between 1990 and 2004 would have earned a fifteen-per-cent return after just one day of trading, whereas the same thousand dollars invested in the ten least fluently named stocks would have earned a return of only four percent.