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Number sense, trading decisions and mispricing: An experiment

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  • Roger, Tristan
  • Roger, Patrick
  • Willinger, Marc

Abstract

We show that the acuity of the Approximate Number System (ANS), a cognitive system that allows humans and many animal species to evaluate quantities without using exact calculations, is a strong predictor of subjects’ earnings in experimental markets. We measure ANS acuity with a bounded number line estimation (NLE) task and find that subjects who perform better on the NLE task, obtain higher earnings in a continuous double auction experimental market. We underline two channels through which high ANS acuity subjects achieve better performance: they are rewarded for offering liquidity and are faster at exploiting trading opportunities. We also show that, in a given market, the distribution of NLE scores influences mispricing. Our results are unchanged when we control for differences in trading intensity, risk aversion, background education or demographic characteristics.

Suggested Citation

  • Roger, Tristan & Roger, Patrick & Willinger, Marc, 2022. "Number sense, trading decisions and mispricing: An experiment," Journal of Economic Dynamics and Control, Elsevier, vol. 135(C).
    • Handle: RePEc:eee:dyncon:v:135:y:2022:i:c:s0165188921002281
    DOI: 10.1016/j.jedc.2021.104293
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    1. Nicolas Eber & Patrick Roger & Tristan Roger, 2024. "Finance and intelligence: An overview of the literature," Journal of Economic Surveys, Wiley Blackwell, vol. 38(2), pages 503-554, April.

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