KLAUS ABBINK () (School of Economics, The University of Nottingham) BETTINA ROCKENBACH () (Lehrstuhl fuer Mikrooekonomie, Universitaet Erfurt)
Abstract
We compare the behaviour of students and professional traders from an influential German bank in an experiment involving financial options. The arbitrage free option price is independent of the probability distribution of the underlying asset. The experimental data uncover a probability dependent option valuation of the students, however, they learn to exploit more arbitrage as they gain experience. The professional traders exhibit a less probability sensitive valuation, but their overall performance is lower than the students’. We offer the explanation that the professional traders choose a more intuitive and less analytic pattern of behaviour than the students, despite their superior knowledge in financial market theory and practice. At real financial markets, traders are typically not confronted with given and known exact probability distributions, but they must rather rely on their intuitive calibration of the prospects.
Download Info
To download:
If you experience problems downloading a file, check if you have the
proper application to
view it first. Information about this may be contained
in the File-Format links below. In case of further problems read
the IDEAS help
page. Note that these files are not on the IDEAS
site. Please be patient as the files may be large.
Publisher Info
Paper provided by The Centre for Decision Research and Experimental Economics, School of Economics, University of Nottingham in its series Discussion Papers with number
2005-12.
Length: Date of creation: Jul 2005 Date of revision: Publication status: Forthcoming in Managerial and Decision Economics Handle: RePEc:cdx:dpaper:2005-12
References listed on IDEAS Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.: