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How Cognitive Load Impacts Analyst Understanding

cognitive_load_impacts_analyst_understanding

Computers are equipped with a hard drive that stores information for access at any time, and a random access memory or RAM that is used to store information that is used in active calculations. A human mind is similarly equipped with long term memories and cognitive memories.

Human Capacity

We use our cognitive memories to do in-the-moment processing required to understand information, and we use our long-term memories to store those understandings later. You’ll find a more in-depth discussion of data visualization and human memory as it applies to investor relations in our blog series from early last month.

The capacity of the cognitive memory is called the “cognitive load”. There are three parts of cognitive load: the intrinsic, the extraneous and the germane.

1. Intrinsic Cognitive Load

The intrinsic cognitive load is the amount of memory necessary to understand a given topic or concept. This part of cognitive load varies with the complexity of the calculations required to understand any given piece of information. For example, adding 1+3 requires less intrinsic cognitive load than solving more complicated arithmetic or doing algebra. Because it’s governed by the topic, the intrinsic cognitive load is considered to be a fixed variable; the amount of processing memory required to learn any given thing no matter what the format.

Intrinsic cognitive load would be a consideration for anyone learning a new skill, taking a course or becoming familiar with a new ir tool. All of these tasks require learning something new. The more complicated the process to be committed to memory, the greater the intrinsic cognitive load.

2. Extraneous Cognitive Load

The extraneous cognitive load is the amount of processing required to understand a topic in addition to the intrinsic cognitive load. It can be thought of as the load capacity being used to overcome the inefficiencies of the material being used to teach any given topic. Ascertaining the relative differences in size and similarities in factor between the integers 16, 32 and 128 requires significantly more cognition when the numbers are presented as figures than when they are illustrated as a bar graph.

This should be a key consideration when we’re graphing data for investors and analysts. Presenting the numbers as figures in a table is bound to create more extraneous cognitive load than presenting them in a bar chart, where the numbers’ size differences and factorial similarities are apparent to a reader through visual comparisons. Activist investors understand the use of visual data in their storytelling and rely on visuals to enhance their message to shareholders.

3. Germane Cognitive Load

The germane cognitive load is the portion of the cognitive memory devoted to creating schemas – organized patterns that are stored in long term memory, and called upon later for context. We have a lengthy discussion on this topic in our recent E-Book on data visualization. The human brain is a sucker for patterns, and they’re an intrinsic part of our learning. Germane cognitive load is necessary for audiences to formulate the base patterns necessary for the absorption and retention of information and concepts.

When you’re creating content for investors, it’s critical to think about the germane cognitive load being placed on them.

How They Work Together

Since the intrinsic cognitive load is a fixed value, a presenter’s goal should be to reduce the extraneous cognitive load to the extent that it’s possible, leaving plenty of room for germane cognitive load. When the cognitive memory is free to operate as germane load, readers are not only able to retain data by creating schemas, they’re able to apply schemas they’ve already made to the information they’re absorbing.

Analysts and investors who aren’t weighed down with extraneous cognitive load are able to imagine how the data fits in to the company as a whole, the market, or how they can implement the security into their overall investment strategy.

Thanks to the University of South Alabama for their primer on cognitive memory 1.

data visualization wins investors

Tim Howard

Tim is our CEO at IR Smartt Inc. He leads the strategy and business development teams, driving the company forward. Tim's previous professional experience included extensive work in Journalism and Online Publishing.