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Psychological Traits and Trading Strategies

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Author Info

  • Bruno Biais

    () (IDEI at Toulouse University)

  • Denis Hilton

    (Social Psychology Department at Toulouse University)

  • Karine Mazurier

    (Social Psychology Department at Toulouse University)

  • Sébastien Pouget

    () (Université des Sciences Sociales de Toulouse and CSEF, University of Salerno)

Abstract

This paper analyzes experimentally if psychological traits and cognitive biases affect trading behaviour and performance. Based on the answers of 67 subjects to a psychological questionnaire we measured their degree of overconfidence, impulsiveness and self-monitoring, and their availability, representativeness and confirmation biases. The 67 subjects also participated in an experimental financial market, in the spirit of Plott and Sunder (1988). We find that impulsive subjects tend to place more orders but do not incur larger losses. We also find that overconfident subjects and subjects prone to the confirmation and representativeness biases have a greater tendency to place unprofitable orders. This negative impact of cognitive biases on trading performance is sronger when subjects have acquired some experience of the game. This suggests that biased subjects engage in improper learning.

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Bibliographic Info

Paper provided by Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy in its series CSEF Working Papers with number 39.

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Date of creation: 01 Apr 2000
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Handle: RePEc:sef:csefwp:39

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  1. Anderson, M.J. & Sunder, S., 1995. "Professional Traders as Intuitive Bayesians," GSIA Working Papers 1995-05, Carnegie Mellon University, Tepper School of Business.
  2. Camerer, Colin, . "Progress and Behavioral Game Theory," Working Papers 1004, California Institute of Technology, Division of the Humanities and Social Sciences.
  3. Reinhard Selten & Michael Mitzkewitz & Gerald R. Uhlich, 1997. "Duopoly Strategies Programmed by Experienced Players," Econometrica, Econometric Society, vol. 65(3), pages 517-556, May.
  4. Joel L. Schrag, 1999. "First Impressions Matter: A Model Of Confirmatory Bias," The Quarterly Journal of Economics, MIT Press, vol. 114(1), pages 37-82, February.
  5. Brad M. Barber & Terrance Odean, 2000. "Trading Is Hazardous to Your Wealth: The Common Stock Investment Performance of Individual Investors," Journal of Finance, American Finance Association, vol. 55(2), pages 773-806, 04.
  6. Biais, Bruno & Pouget, Sébastien, 2000. "Microstructure, Incentives, and the Discovery of Equilibrium in Experimental Financial Markets," IDEI Working Papers 103, Institut d'Économie Industrielle (IDEI), Toulouse.
  7. Camerer, Colin & Loewenstein, George & Weber, Martin, 1989. "The Curse of Knowledge in Economic Settings: An Experimental Analysis," Journal of Political Economy, University of Chicago Press, vol. 97(5), pages 1232-54, October.
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Cited by:
  1. Glaser, Markus & Weber, Martin, 2003. "Overconfidence and Trading Volume," Sonderforschungsbereich 504 Publications 03-07, Sonderforschungsbereich 504, Universität Mannheim & Sonderforschungsbereich 504, University of Mannheim.
  2. Locke, Peter R. & Mann, Steven C., 2005. "Professional trader discipline and trade disposition," Journal of Financial Economics, Elsevier, vol. 76(2), pages 401-444, May.
  3. Dennis Dittrich & Werner Güth & Boris Maciejovsky, . "Overconfidence in Investment Decisions: An Experimental Approach," Papers on Strategic Interaction 2001-03, Max Planck Institute of Economics, Strategic Interaction Group.
  4. Glaser, Markus & Weber, Martin, 2003. "Overconfidence and Trading Volume," CEPR Discussion Papers 3941, C.E.P.R. Discussion Papers.

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