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Cognitive Abilities and Individual Earnings in Hybrid Continuous Double Auctions

Author

Listed:
  • Yan Peng

    (Xiamen University)

  • Jason Shachat

    (Durham University Business School, Wuhan Unviversity, Chapman University)

  • Lijia Wei

    (Wuhan University)

  • S. Sarah Zhang

    (University of Manchester)

Abstract

We study the influence of cognitive abilities, in particular reaction time, trader intuition (Theory of Mind), and cognitive reflection abilities, on human participants’ individual earnings when competing alongside algorithmic traders in continuous double auctions. In balanced markets, where each human trader has an algorithmic trader clone with the same valuations or costs, faster human reaction time significantly improves trading performance, while Theory of Mind can be detrimental to human trading performance, particularly for sellers. For unbalanced markets with humans and algorithmic traders on opposite sides of the market, the effects of cognitive abilities depend on trader role as well as agent presence and speed, highlighting the influence of market balance and agent presence and speed on trading success and earnings.

Suggested Citation

  • Yan Peng & Jason Shachat & Lijia Wei & S. Sarah Zhang, 2024. "Cognitive Abilities and Individual Earnings in Hybrid Continuous Double Auctions," Working Papers 24-05, Chapman University, Economic Science Institute.
    • Handle: RePEc:chu:wpaper:24-05
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    File URL: https://digitalcommons.chapman.edu/esi_working_papers/401/
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    More about this item

    Keywords

    Trading agents; Cognitive abilities; Algorithmic trading; Laboratory experiment;
    All these keywords.

    JEL classification:

    • C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
    • C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
    • D40 - Microeconomics - - Market Structure, Pricing, and Design - - - General

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