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Good Thinking or Gut Feeling? Cognitive Reflection and Intuition in Traders, Bankers and Financial Non-Experts

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  • Volker Thoma
  • Elliott White
  • Asha Panigrahi
  • Vanessa Strowger
  • Irina Anderson

Abstract

The current study investigated differences in decision-making style and risk-taking between financial traders, non-trading bank employees, and people not working in finance. Traders scored significantly higher than participants in the other two groups on the cognitive reflection test (CRT) which measures the tendency to inhibit automatic but frequently false responses in reasoning tasks. Scores for traders compared to people outside the banking sector were also higher on a self-rated scale for reflective thinking in decision-making, but there were no differences in self-rated intuitive thinking between groups. Financial risk-taking correlated with cognitive reflection scores and was significantly lower in the non-expert group compared to the other groups working in financial services. Traders in the current study showed no elevated preference to use ‘intuition’ in their decision-making compared to other groups. Overall, these results indicate that compared to non-expert participants financial traders have a higher self-rated tendency for reflective thinking and a greater propensity to inhibit the use of mental shortcuts (heuristics) in decision-making.

Suggested Citation

  • Volker Thoma & Elliott White & Asha Panigrahi & Vanessa Strowger & Irina Anderson, 2015. "Good Thinking or Gut Feeling? Cognitive Reflection and Intuition in Traders, Bankers and Financial Non-Experts," PLOS ONE, Public Library of Science, vol. 10(4), pages 1-17, April.
    • Handle: RePEc:plo:pone00:0123202
    DOI: 10.1371/journal.pone.0123202
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    1. Leite, Rodrigo de Oliveira & Cardoso, Ricardo Lopes & Jelihovschi, Ana Paula Gomes & Civitarese, Jamil, 2020. "Job market compensation for cognitive reflection ability," Research in Economics, Elsevier, vol. 74(1), pages 87-93.
    2. Brice Corgnet & Mark Desantis & David Porter, 2018. "What Makes a Good Trader? On the Role of Intuition and Reflection on Trader Performance," Journal of Finance, American Finance Association, vol. 73(3), pages 1113-1137, June.
    3. Bottasso, Anna & Duchêne, Sébastien & Guerci, Eric & Hanaki, Nobuyuki & Noussair, Charles N., 2022. "Higher order risk attitudes of financial experts," Journal of Behavioral and Experimental Finance, Elsevier, vol. 34(C).
    4. Corgnet, Brice & DeSantis, Mark & Siemroth, Christoph, 2023. "Algorithmic Trading, Price Efficiency and Welfare: An Experimental Approach," Economics Discussion Papers 36273, University of Essex, Department of Economics.
    5. Brice Corgnet & Mark DeSantis & David Porter, 2020. "Information Aggregation and the Cognitive Make-up of Traders," Working Papers 20-18, Chapman University, Economic Science Institute.
    6. Hamelin, Nicolas & Bonelli, Marco I., 2022. "Traders’ anticipatory feelings and traders’ profitability: An exploratory study," Journal of Behavioral and Experimental Finance, Elsevier, vol. 36(C).
    7. Duchêne, Sébastien & Guerci, Eric & Hanaki, Nobuyuki & Noussair, Charles N., 2019. "The effect of short selling and borrowing on market prices and traders’ behavior," Journal of Economic Dynamics and Control, Elsevier, vol. 107(C), pages 1-1.
    8. Nobuyuki Hanaki, 2020. "Cognitive ability and observed behavior in laboratory experiments: implications for macroeconomic theory," The Japanese Economic Review, Springer, vol. 71(3), pages 355-378, July.
    9. Schwaiger, Rene & Kirchler, Michael & Lindner, Florian & Weitzel, Utz, 2020. "Determinants of investor expectations and satisfaction. A study with financial professionals," Journal of Economic Dynamics and Control, Elsevier, vol. 110(C).
    10. Ciril Bosch-Rosa & Brice Corgnet, 2022. "Cognitive finance," Chapters, in: Sascha Füllbrunn & Ernan Haruvy (ed.), Handbook of Experimental Finance, chapter 7, pages 73-88, Edward Elgar Publishing.
    11. Corgnet, Brice & DeSantis, Mark & Porter, David, 2021. "Information aggregation and the cognitive make-up of market participants," European Economic Review, Elsevier, vol. 133(C).
    12. Talwar, Manish & Talwar, Shalini & Kaur, Puneet & Tripathy, Naliniprava & Dhir, Amandeep, 2021. "Has financial attitude impacted the trading activity of retail investors during the COVID-19 pandemic?," Journal of Retailing and Consumer Services, Elsevier, vol. 58(C).
    13. Anderson, Irina & Thoma, Volker, 2021. "The edge of reason: A thematic analysis of how professional financial traders understand analytical decision making," European Management Journal, Elsevier, vol. 39(2), pages 304-314.
    14. Lucks, Konstantin, 2016. "The Impact of Self-Control on Investment Decisions," MPRA Paper 73099, University Library of Munich, Germany.
    15. repec:cup:judgdm:v:15:y:2020:i:1:p:112-134 is not listed on IDEAS
    16. Brice Corgnet & Mark DeSantis & David Porter, 2015. "Revisiting Information Aggregation in Asset Markets: Reflective Learning & Market Efficiency," Working Papers 15-15, Chapman University, Economic Science Institute.
    17. Yiyun Shou & Joel Olney, 2020. "Assessing a domain-specific risk-taking construct: A meta-analysis of reliability of the DOSPERT scale," Judgment and Decision Making, Society for Judgment and Decision Making, vol. 15(1), pages 112-134, January.
    18. Ogawa, Kazuhito & Kawamura, Tetsuya & Matsushita, Keiichiro, 2020. "Effects of cognitive ability and age on giving in dictator game experiments," Research in Economics, Elsevier, vol. 74(4), pages 323-335.

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