IDEAS home Printed from https://ideas.repec.org/a/eee/eurman/v39y2021i2p304-314.html
   My bibliography  Save this article

The edge of reason: A thematic analysis of how professional financial traders understand analytical decision making

Author

Listed:
  • Anderson, Irina
  • Thoma, Volker

Abstract

This study uses thematic analysis to investigate accounts of Type 2 (analytical, rational and reflective) decision-making processes in professional financial traders working in the City of London. Previous studies have focused on using qualitative methods to examine trader understanding of Type 1 decision-making (intuition and ‘gut feeling’). No published study has investigated how traders view Type 2 decisions. Findings from semi-structured interviews with 14 traders revealed two overarching themes derived from four subthemes. The first overarching theme (‘Knowledge gap’) demonstrated that traders do not find their analytical decision-making processes as accessible as dual-process theory predicts. In particular, traders failed to label processes such as reading research or evaluating data as analytical. In contrast, they viewed Type 2 decisions in a ‘saviour’ role where these processes offered traders psychological or emotional support during loss making periods. The implications of these findings are discussed with respect to the decision-training of traders, their management, and practice.

Suggested Citation

  • Anderson, Irina & Thoma, Volker, 2021. "The edge of reason: A thematic analysis of how professional financial traders understand analytical decision making," European Management Journal, Elsevier, vol. 39(2), pages 304-314.
    • Handle: RePEc:eee:eurman:v:39:y:2021:i:2:p:304-314
    DOI: 10.1016/j.emj.2020.08.006
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0263237320301262
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.emj.2020.08.006?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Andrew W. Lo & Dmitry V. Repin & Brett N. Steenbarger, 2005. "Fear and Greed in Financial Markets: A Clinical Study of Day-Traders," American Economic Review, American Economic Association, vol. 95(2), pages 352-359, May.
    2. Schunk, Daniel & Betsch, Cornelia, 2006. "Explaining heterogeneity in utility functions by individual differences in decision modes," Journal of Economic Psychology, Elsevier, vol. 27(3), pages 386-401, June.
    3. Bruno Biais & Martin Weber, 2009. "Hindsight Bias, Risk Perception, and Investment Performance," Management Science, INFORMS, vol. 55(6), pages 1018-1029, June.
    4. Volker Thoma & Elliott White & Asha Panigrahi & Vanessa Strowger & Irina Anderson, 2015. "Good Thinking or Gut Feeling? Cognitive Reflection and Intuition in Traders, Bankers and Financial Non-Experts," PLOS ONE, Public Library of Science, vol. 10(4), pages 1-17, April.
    5. Cristofaro, Matteo, 2020. "“I feel and think, therefore I am”: An Affect-Cognitive Theory of management decisions," European Management Journal, Elsevier, vol. 38(2), pages 344-355.
    6. Shapira, Zur & Venezia, Itzhak, 2001. "Patterns of behavior of professionally managed and independent investors," Journal of Banking & Finance, Elsevier, vol. 25(8), pages 1573-1587, August.
    7. Samson, Alain & Voyer, Benjamin G., 2014. "Emergency purchasing situations: implications for consumer decision-making," LSE Research Online Documents on Economics 57074, London School of Economics and Political Science, LSE Library.
    8. Shleifer, Andrei, 2000. "Inefficient Markets: An Introduction to Behavioral Finance," OUP Catalogue, Oxford University Press, number 9780198292272, Decembrie.
    9. Shane Frederick, 2005. "Cognitive Reflection and Decision Making," Journal of Economic Perspectives, American Economic Association, vol. 19(4), pages 25-42, Fall.
    10. Gabbi, Giampaolo & Zanotti, Giovanna, 2019. "Sex & the City. Are financial decisions driven by emotions?," Journal of Behavioral and Experimental Finance, Elsevier, vol. 21(C), pages 50-57.
    11. Ravi Dhar & Ning Zhu, 2006. "Up Close and Personal: Investor Sophistication and the Disposition Effect," Management Science, INFORMS, vol. 52(5), pages 726-740, May.
    12. Gulnur Muradoglu & Nigel Harvey, 2012. "Behavioural finance: the role of psychological factors in financial decisions," Review of Behavioral Finance, Emerald Group Publishing Limited, vol. 4(2), pages 68-80, November.
    13. Andrew W. Lo & Dmitry V. Repin, 2001. "The Psychophysiology of Real-Time Financial Risk Processing," NBER Working Papers 8508, National Bureau of Economic Research, Inc.
    14. Gärling, Tommy & Kirchler, Erich & Lewis, Alan & van Raaij, Fred, 2009. "Psychology, Financial Decision Making, and Financial Crises," Sustainable Investment and Corporate Governance Working Papers 2009/7, Sustainable Investment Research Platform.
    15. Cristofaro, Matteo, 2019. "The role of affect in management decisions: A systematic review," European Management Journal, Elsevier, vol. 37(1), pages 6-17.
    16. Samson, Alain & Voyer, Benjamin G., 2014. "Emergency purchasing situations: Implications for consumer decision-making," Journal of Economic Psychology, Elsevier, vol. 44(C), pages 21-33.
    17. Ozkan-Tektas, Oznur & Basgoze, Pinar, 2017. "Pre-recovery emotions and satisfaction: A moderated mediation model of service recovery and reputation in the banking sector," European Management Journal, Elsevier, vol. 35(3), pages 388-395.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. repec:thr:techub:10032:y:2022:i:1:p:41-61 is not listed on IDEAS
    2. Jesus Alberto Peinado Guevara & Victor Manuel Peinado Guevara & Aldo Alan Cuadras Berrelleza & Jaime Herrera Barrientos & Hector Jose Peinado Guevara & Mayra Patricia Osuna & Miguel Angel Montoya Leyv, 2022. "Importance of financial planning for the administrator of microenterprise in Guasave, Sinaloa," Technium Social Sciences Journal, Technium Science, vol. 32(1), pages 41-61, June.
    3. Hamelin, Nicolas & Bonelli, Marco I., 2022. "Traders’ anticipatory feelings and traders’ profitability: An exploratory study," Journal of Behavioral and Experimental Finance, Elsevier, vol. 36(C).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Volker Thoma & Elliott White & Asha Panigrahi & Vanessa Strowger & Irina Anderson, 2015. "Good Thinking or Gut Feeling? Cognitive Reflection and Intuition in Traders, Bankers and Financial Non-Experts," PLOS ONE, Public Library of Science, vol. 10(4), pages 1-17, April.
    2. Lucks, Konstantin, 2016. "The Impact of Self-Control on Investment Decisions," MPRA Paper 73099, University Library of Munich, Germany.
    3. Markus Glaser & Thomas Langer & Martin Weber, 2007. "On the Trend Recognition and Forecasting Ability of Professional Traders," Decision Analysis, INFORMS, vol. 4(4), pages 176-193, December.
    4. K.S. Muehlfeld & G.U. Weitzel & A. van Witteloostuijn, 2012. "Fight or freeze? Individual differences in investors’ motivational systems and trading in experimental asset markets," Working Papers 12-18, Utrecht School of Economics.
    5. Brice Corgnet & Cary Deck & Mark DeSantis & David Porter, 2022. "Forecasting Skills in Experimental Markets: Illusion or Reality?," Management Science, INFORMS, vol. 68(7), pages 5216-5232, July.
    6. Brice Corgnet & Mark Desantis & David Porter, 2018. "What Makes a Good Trader? On the Role of Intuition and Reflection on Trader Performance," Journal of Finance, American Finance Association, vol. 73(3), pages 1113-1137, June.
    7. Nobuyuki Hanaki, 2020. "Cognitive ability and observed behavior in laboratory experiments: implications for macroeconomic theory," The Japanese Economic Review, Springer, vol. 71(3), pages 355-378, July.
    8. Deaves, Richard & Kluger, Brian & Miele, Jennifer, 2018. "An exploratory experimental analysis of path-dependent investment behaviors," Journal of Economic Psychology, Elsevier, vol. 67(C), pages 47-65.
    9. Suresh G., 2024. "Impact of Financial Literacy and Behavioural Biases on Investment Decision-making," FIIB Business Review, , vol. 13(1), pages 72-86, January.
    10. Muehlfeld, Katrin & Weitzel, Utz & van Witteloostuijn, Arjen, 2013. "Fight or freeze? Individual differences in investors’ motivational systems and trading in experimental asset markets," Journal of Economic Psychology, Elsevier, vol. 34(C), pages 195-209.
    11. Matteo Cristofaro & Pier Luigi Giardino & Luna Leoni, 2020. "The Influence of Core Self-Evaluations on Group Decision Making Processes: A Laboratory Experiment," Administrative Sciences, MDPI, vol. 10(2), pages 1-16, May.
    12. Matteo Cristofaro & Maria José Sousa & José Carlos Sanchéz-Garcia & Aron Larsson, 2021. "Contextualized Behavior for Improving Managerial and Entrepreneurial Decision-Making," Administrative Sciences, MDPI, vol. 11(1), pages 1-5, February.
    13. Jaakko Aspara & Arvid Hoffmann, 2015. "Selling losers and keeping winners: How (savings) goal dynamics predict a reversal of the disposition effect," Marketing Letters, Springer, vol. 26(2), pages 201-211, June.
    14. Edika Quispe-Torreblanca & David Hume & John Gathergood & George Loewenstein & Neil Stewart, 2023. "At the Top of the Mind: Peak Prices and the Disposition Effect," Discussion Papers 2023-09, The Centre for Decision Research and Experimental Economics, School of Economics, University of Nottingham.
    15. Brice Corgnet & Mark DeSantis & Christoph Siemroth, 2023. "Algorithmic Trading, Price Efficiency and Welfare: An Experimental Approach," Working Papers 2313, Groupe d'Analyse et de Théorie Economique Lyon St-Étienne (GATE Lyon St-Étienne), Université de Lyon.
    16. Vassilis A. Efthymiou & George N. Leledakis, 2014. "The price impact of the disposition effect on the ex-dividend day of NYSE and AMEX common stocks," Quantitative Finance, Taylor & Francis Journals, vol. 14(4), pages 711-724, April.
    17. Leite, Rodrigo de Oliveira & Cardoso, Ricardo Lopes & Jelihovschi, Ana Paula Gomes & Civitarese, Jamil, 2020. "Job market compensation for cognitive reflection ability," Research in Economics, Elsevier, vol. 74(1), pages 87-93.
    18. Da Costa, Newton & Goulart, Marco & Cupertino, Cesar & Macedo, Jurandir & Da Silva, Sergio, 2013. "The disposition effect and investor experience," Journal of Banking & Finance, Elsevier, vol. 37(5), pages 1669-1675.
    19. Kahya, Evrim Hilal & Ekinci, Cumhur, 2022. "Disposition bias among Borsa Istanbul investors: What do we know about type, size and trading frequency?," Journal of Behavioral and Experimental Finance, Elsevier, vol. 35(C).
    20. Duchêne, Sébastien & Guerci, Eric & Hanaki, Nobuyuki & Noussair, Charles N., 2019. "The effect of short selling and borrowing on market prices and traders’ behavior," Journal of Economic Dynamics and Control, Elsevier, vol. 107(C), pages 1-1.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:eurman:v:39:y:2021:i:2:p:304-314. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/wps/find/journaldescription.cws_home/115/description#description .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.