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Narrow framing: Professions, sophistication, and experience

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  • Yu‐Jane Liu
  • Ming‐Chun Wang
  • Longkai Zhao

Abstract

We document support for the narrow framing effect proposed by Tversky, A. and Kahneman, D. (1981). Our findings that traders in an options market frame complicated investment decisions into simpler ones support the narrow framing effect. Traders' professionalism, sophistication, and trading experience are negatively correlated with the degree of narrow framing, implying that these factors help to reduce investors' behavioral bias. Our study bridges the gap between the psychological literature and financial literature in terms of the relationship between experience/sophistication and narrow framing. The article sheds light on the decision‐making process in an options market, and the relationship between narrow framing and sophistication/experience. © 2009 Wiley Periodicals, Inc. Jrl Fut Mark 30:203–229, 2010

Suggested Citation

  • Yu‐Jane Liu & Ming‐Chun Wang & Longkai Zhao, 2010. "Narrow framing: Professions, sophistication, and experience," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 30(3), pages 203-229, March.
    • Handle: RePEc:wly:jfutmk:v:30:y:2010:i:3:p:203-229
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    Cited by:

    1. Ciccarone Giuseppe & Giuli Francesco & Marchetti Enrico, 2020. "Prospect Theory and sentiment-driven fluctuations," The B.E. Journal of Macroeconomics, De Gruyter, vol. 20(1), pages 1-25, January.
    2. Haziza, Mor M. & Kalay, Avner, 2020. "Trust and delegation: A case to consider on broker rebates and investor sophistication," Journal of Financial Markets, Elsevier, vol. 49(C).
    3. DeVault, Luke & Sias, Richard, 2017. "Hedge fund politics and portfolios," Journal of Banking & Finance, Elsevier, vol. 75(C), pages 80-97.
    4. Chen, Rongxin & Lepori, Gabriele M. & Tai, Chung-Ching & Sung, Ming-Chien, 2022. "Can salience theory explain investor behaviour? Real-world evidence from the cryptocurrency market," International Review of Financial Analysis, Elsevier, vol. 84(C).
    5. D'Hondt, Catherine & Elhichou Elmaya, Younes & Petitjean, Mikael, 2020. "Retail Investing in Passive Exchange Traded Funds," LIDAM Discussion Papers LFIN 2020013, Université catholique de Louvain, Louvain Finance (LFIN).

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