Banca de DEFESA: Maryane Barbosa Nogueira

Noise analysis in discounted cash flow projections: a study based on the work of Kahneman, Sibony and Sunstein.

Discounted cash flow; Noise; Human judgment.

This study aimed to assess the presence of systematic noise in discounted cash flow projections when human judgment is employed. An empirical experiment was conducted with 62 participants, including students and professionals in the field of Accounting. They were placed in a fictional scenario where they needed to assess the fair value of a soybean harvest for the recognition of the biological asset of a fictitious company, using the discounted cash flow method. The research was grounded in Kahneman, Sibony, and Sunstein's work, "Noise: A Flaw in Human Judgment" (2021), which discusses system noise as the undesirable variability in judgments on the same case by multiple individuals. According to the book, reducing noise in human decisions occurs through the establishment of guiding directives. Participants were randomly divided into two groups (Group A without directives and Group B with directives) to measure the noise generated when the same exercise is performed by different individuals and whether the group with directives would exhibit less noise. The variables involving the use of human judgment were revenue, costs, and discount rate variable “kd - cost of debt capital”. Results confirm the presence of noise in variables involving human judgment, with more significant noise observed in the group without directives.