Reading the business pages over the last year, it is clear that a lot of investors did not know what they were buying. That is not to fault the investors entirely. There is far too much information out there for people to be able to inform themselves fully about every investment opportunity. In addition, it is clear that banks, and rating agencies, and companies were not entirely forthright in providing information about themselves.

But, if people are not using information about the health of companies to purchase stocks and bonds, what are they doing?

An interesting study by Adam Alter and Daniel Oppenheimer in a June, 2006 issue of the Proceedings of the National Academy of Sciences suggests that people may evaluate new companies in part by how easy it is to think about them. With very new companies that have just started to sell stock, this ease of thinking about them is based on their name and their stock symbol.

First, they tracked the stock prices of 89 companies for the first year after the stock was publicly traded. Starting from the first day, companies whose names were easier to pronounce were traded at a higher price than companies whose names were harder to pronounce. This effect held up even a year after the company first started selling stock. The authors did additional analyses to rule out alternatives like the possibility that bigger companies can hire better consultants who give them better advice on names or that industries differ in how easy it is to pronounce the company names. These alternatives did not explain the effect.