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What Makes a Good Trader? On the Role of Intuition and Reflection on Trader Performance

Author

Listed:
  • Brice Corgnet

    (EM - EMLyon Business School, GATE Lyon Saint-Étienne - Groupe d'Analyse et de Théorie Economique Lyon - Saint-Etienne - ENS de Lyon - École normale supérieure de Lyon - UL2 - Université Lumière - Lyon 2 - UCBL - Université Claude Bernard Lyon 1 - Université de Lyon - UJM - Université Jean Monnet - Saint-Étienne - CNRS - Centre National de la Recherche Scientifique)

  • Mark Desantis

    (Chapman University)

  • David Porter

    (Chapman University)

Abstract

Using simulations and experiments, we pinpoint two main drivers of trader performance: cognitive reflection and theory of mind. Both dimensions facilitate traders' learning about asset valuation. Cognitive reflection helps traders use market signals to update their beliefs whereas theory of mind offers traders crucial hints on the quality of those signals. We show these skills to be complementary because traders benefit from understanding the quality of market signals only if they are capable of processing them. Cognitive reflection relates to previous Behavioral Finance research as it is the best predictor of a trader's ability to avoid commonly-observed behavioral biases.

Suggested Citation

  • Brice Corgnet & Mark Desantis & David Porter, 2018. "What Makes a Good Trader? On the Role of Intuition and Reflection on Trader Performance," Post-Print halshs-01937747, HAL.
    • Handle: RePEc:hal:journl:halshs-01937747
    DOI: 10.1111/jofi.12619
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    More about this item

    Keywords

    Experimental asset markets; behavioral finance; cognitive reflection; theory of mind; financial education;
    All these keywords.

    JEL classification:

    • C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
    • G02 - Financial Economics - - General - - - Behavioral Finance: Underlying Principles

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