From the field to the lab: Professionals and bidding aggression

We experimentally study the relationship between real-world trading experience and bidding aggression in a one-sided auction. We first present findings from a first-price auction experiment conducted with student subjects. We find that those subjects who report participating in a greater number of real-world auctions bid less aggressively in the lab. A similar relationship could explain why financial professionals are able to stabilize prices in asset markets. Thus, we conducted a second experiment focusing on experience in trading financial products. We find that those subjects who report trading in the stock market more frequently also bid less aggressively. We demonstrate that this relationship is robust to controlling for a selection effect among professionals due to risk preferences. Our findings contribute to the experimental finance literature documenting differences in behavioural biases between professionals versus students and suggest a new channel through which price bubbles might be attenuated in mature financial markets.