What Makes a Good Trader? On the Role of Intuition and Reflection on Trader Performance

Corgnet, Brice; DeSantis, Mark; Porter, David

doi:10.1111/jofi.12619

Cited by 79 publications

(63 citation statements)

References 71 publications

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“…We find that theory of mind is associated with greater trading profit, greater overall profit, and an increased likelihood of acquiring information while cognitive reflection is associated with greater profit but not a greater propensity to acquire information. The fact 4 that both cognitive reflection and theory of mind positively explain traders' earnings shows the robustness of the findings of Corgnet et al (2017) to the case in which traders decide upon costly information acquisition.…”

Section: Introductionmentioning

confidence: 74%

“…On the other hand, social networks and other web-based communication technologies may have made traders more aware of others' information acquisition strategies thus reducing the appeal for information purchasing. Following Corgnet et al (2017), we also extend previous works by assessing the role of cognitive factors such as theory of mind skills and cognitive reflection in understanding individual decisions to acquire information. We find that theory of mind is associated with greater trading profit, greater overall profit, and an increased likelihood of acquiring information while cognitive reflection is associated with greater profit but not a greater propensity to acquire information.…”

Section: Introductionmentioning

confidence: 96%

“…At the individual level, we test the robustness of the results established by Hefti et al (2016) and Corgnet et al (2017) regarding the positive effect of cognitive skills on traders' earnings. Corgnet et al (2017) show that cognitive reflection and theory of mind positively explain traders' earnings in experimental markets with private information similar to the ones used in the current design except for the fact that private signals were exogenously given to traders.…”

Section: Conjecture I (Information Acquisition)mentioning

confidence: 99%

“…Bruguier et al (2010) report that traders who score well on the ToM test are better able to predict price changes in experimental asset markets with insiders. Corgnet et al (2017) and Hefti et al (2016) also find that those who score well on this test are better able to glean insights from market orders (bids, asks, and prices). Subjects were paid US$3 for completing the survey, though none of the individual tests were incentivized which is standard practice in the literature.…”

mentioning

confidence: 99%

“…In particular, we elicited cognitive reflection and theory of mind because trader earnings in experimental markets have been shown to positively relate to these two measures (see Corgnet et al 2017;Hefti et al 2016). We used the seven-item cognitive reflection test (CRT) of Toplak et al (2014), which is an expanded version of the three-question test by Frederick (2005).…”

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confidence: 99%

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Information (non)aggregation in markets with costly signal acquisition

Corgnet

Deck

DeSantis

et al. 2018

Journal of Economic Behavior & Organization

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Abstract:Markets are often viewed as a tool for aggregating disparate private knowledge, a stance supported by past laboratory experiments. However, traders' acquisition cost of information has typically been ignored. Results from a laboratory experiment involving six treatments varying the cost of acquiring signals of an asset's value suggest that when information is costly, markets do not succeed in aggregating it. At an individual level, having information improves trading performance, but not enough to offset the cost of obtaining the information. Although males earn more through trading than females, this differential is offset by the greater propensity of males to buy information such that total profit is similar for males and females. Looking at individual skills, we find that higher theory of mind is associated with greater trading profit, greater overall profit, and an increased likelihood of acquiring information while cognitive reflection is associated with greater profit but not a greater propensity to acquire information. Keywords:Prediction Markets, Information Acquisition, Laboratory Experiments, Behavioral Finance JEL codes: Markets are often viewed as a tool for aggregating disparate private knowledge, a stance supported by past laboratory experiments. However, traders' acquisition cost of information has typically been ignored. Results from a laboratory experiment involving six treatments varying the cost of acquiring signals of an asset's value suggest that when information is costly, markets do not succeed in aggregating it. At an individual level, having information improves trading performance, but not enough to offset the cost of obtaining the information. Although males earn more through trading than females, this differential is offset by the greater propensity of males to buy information such that total profit is similar for males and females.Looking at individual skills, we find that higher theory of mind is associated with greater trading profit, greater overall profit, and an increased likelihood of acquiring information while cognitive reflection is associated with greater profit but not a greater propensity to acquire information.

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Section: Introductionmentioning

confidence: 74%

Section: Introductionmentioning

confidence: 96%

Section: Conjecture I (Information Acquisition)mentioning

confidence: 99%

mentioning

confidence: 99%

mentioning

confidence: 99%

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Information (non)aggregation in markets with costly signal acquisition

Corgnet

Deck

DeSantis

et al. 2018

Journal of Economic Behavior & Organization

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Personality, Emotional Intelligence, and Rationality

Corgnet

Gächter

González

2020

Handbook of Labor, Human Resources and Population Economics

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Trading while sleepy? Circadian mismatch and mispricing in a global experimental asset market

2019

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Traders in global markets operate at different local times-of-day. This implies heterogeneity in circadian timing and likely sleepiness or alertness of those traders operating at less or more optimal times of the day, respectively. This, in turn, may lead to differences in both individual-level trader behavior as well as market level outcomes. We examined these factors by administering single-location and global sessions of an online asset market experiment that regularly produces mispricing and valuation bubbles. Global sessions involved real time trades between subjects in New Zealand and the U.S (i.e., "global" markets) with varied local times of day for each location. Individual traders at suboptimal times of day (or, "circadian mismatched" traders) engaged in riskier trading strategies, such as holding shares (the riskier asset) in later trading rounds and mispricing shares to a greater degree. These strategies resulted in lower earnings for circadian mismatched traders, especially in heterogeneous markets that also included traders at more optimal times-of-day. These differences were also reflected in market level outcomes. Markets with higher circadian mismatch heterogeneity across traders were more likely to exhibit longer lasting asset bubbles and greater share turnover volume. Overall, our results draw attention to a unique, but underappreciated, factor present across traders in global market environments, namely, differences in sleepiness across traders. Thus, this study hopes to highlight the role of circadian mismatch in attempting to understand trader behavior and, ultimately, market volatility.

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What Makes a Good Trader? On the Role of Intuition and Reflection on Trader Performance

Cited by 79 publications

References 71 publications

Information (non)aggregation in markets with costly signal acquisition

Information (non)aggregation in markets with costly signal acquisition

Personality, Emotional Intelligence, and Rationality

Trading while sleepy? Circadian mismatch and mispricing in a global experimental asset market

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