█ Self–other decision making and loss aversion You might think that I have discussed this topic in depth before, and you would be right. However, there is still much more to explore. This article delves into an excellent research paper by Evan Polman, which examines changes in decision-making behavior when choices are made for oneself versus for others. By...
█ Prospect theory, the disposition effect, and asset prices In the research paper "Prospect Theory, the Disposition Effect, and Asset Prices," authors Yan Li and Liyan Yang delve into the implications of prospect theory on asset pricing and trading volume through the lens of the disposition effect. The disposition effect, a tendency to sell assets that have...
█ Traders, managers and loss aversion in investment banking In investment banking institutions, traders and managers exert immense pressure to maximize gains while minimizing losses. In fact, loss aversion, the tendency to prefer avoiding losses over acquiring equivalent gains, is what influences most of their decision-making. If not managed effectively, this...
█ Myopic loss aversion and market experience Myopic Loss Aversion (MLA) is a behavioral bias that severely affects trading behavior, particularly the tendency to avoid losses more aggressively than to pursue equivalent gains. This bias can lead you to make suboptimal decisions, such as selling winning assets too quickly or holding onto losing assets for too...
There are a couple of reasons why to use automated trading, like better risk management, human error, easier to diversify, and Psychology In this post, the focus is on psychology. Here are some of the cognitive biases that affect trading: Loss aversion - the tendency to prefer avoiding losses to acquiring equivalent gains. It feels much worse losing $100...
People that call themselves neuro-economists make all sorts of experiments, the ABCD questions are from Kahneman and Tversky from 40 years ago, I found these examples on stanford website. There was another similar study, or series of studies in Lyon, France. They got people to speculate and when they dangled the carrot in front of them they basically created...