IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper

Do professional traders exhibit myopic loss aversion? An experimental analysis

  • John List
  • Michael Haigh

Two behavioral concepts, loss aversion and mental accounting, have recently been combined to provide a theoretical explanation of the equity premium puzzle. Recent experimental evidence suggests that undergraduate students' behavior is consistent with this "myopic loss aversion" conjecture. Our suspicion is that, much like certain anomalies in the realm of riskless decisions, these behavioral tendencies will be severely attenuated when real market players are put to the task. Making use of a unique subject pool-professional futures and options pit traders recruited from the Chicago Board of Trade-we do find behavioral differences between professionals and students. Yet, rather than discovering that the anomaly disappears, the data suggest that professional traders exhibit myopic loss aversion to a greater extent than undergraduate students.

If you experience problems downloading a file, check if you have the proper application to view it first. 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.

File URL: http://s3.amazonaws.com/fieldexperiments-papers/papers/00052.pdf
Download Restriction: no

Paper provided by The Field Experiments Website in its series Artefactual Field Experiments with number 00052.

as
in new window

Length:
Date of creation: 2005
Date of revision:
Handle: RePEc:feb:artefa:00052
Contact details of provider: Web page: http://www.fieldexperiments.com

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.:

as in new window
  1. Gollier, C. & Lindsey, J. & Zeckhauser, R., 1996. "Investment Flexibility and the Acceptance of Risk," Papers 96.421, Toulouse - GREMAQ.
  2. Uri Gneezy & Jan Potters, 1997. "An Experiment on Risk Taking and Evaluation Periods," The Quarterly Journal of Economics, Oxford University Press, vol. 112(2), pages 631-645.
  3. Gneezy, U. & Kapteyn, A. & Potters, J.J.M., 2002. "Evaluation Periods and Asset Prices in a Market Experiment," Discussion Paper 2002-8, Tilburg University, Center for Economic Research.
  4. John A. List, 2004. "Neoclassical Theory Versus Prospect Theory: Evidence from the Marketplace," Econometrica, Econometric Society, vol. 72(2), pages 615-625, 03.
  5. Richard H. Thaler, 2008. "Mental Accounting and Consumer Choice," Marketing Science, INFORMS, vol. 27(1), pages 15-25, 01-02.
  6. 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.
  7. Mehra, Rajnish & Prescott, Edward C., 1985. "The equity premium: A puzzle," Journal of Monetary Economics, Elsevier, vol. 15(2), pages 145-161, March.
  8. Kahneman, Daniel & Tversky, Amos, 1979. "Prospect Theory: An Analysis of Decision under Risk," Econometrica, Econometric Society, vol. 47(2), pages 263-91, March.
  9. John List, 2003. "Does market experience eliminate market anomalies?," Natural Field Experiments 00297, The Field Experiments Website.
  10. Shlomo Benartzi & Richard H. Thaler, 1995. "Myopic Loss Aversion and the Equity Premium Puzzle," The Quarterly Journal of Economics, Oxford University Press, vol. 110(1), pages 73-92.
  11. Richard H. Thaler & Amos Tversky & Daniel Kahneman & Alan Schwartz, 1997. "The Effect of Myopia and Loss Aversion on Risk Taking: An Experimental Test," The Quarterly Journal of Economics, Oxford University Press, vol. 112(2), pages 647-661.
  12. John A. List, 2002. "Preference Reversals of a Different Kind: The "More Is Less" Phenomenon," American Economic Review, American Economic Association, vol. 92(5), pages 1636-1643, December.
  13. Theodore W. Schultz, 1962. "Reflections on Investment in Man," Journal of Political Economy, University of Chicago Press, vol. 70, pages 1.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:feb:artefa:00052. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Joe Seidel)

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 references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link 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 profile, as there may be some citations waiting for confirmation.

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

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.