Mental Capabilities, Heterogeneous Trading Patterns and Performance in an Experimental Asset Market

University of Zurich, Department of Economics, Working Paper No. 234

61 Pages Posted: 1 Sep 2016 Last revised: 15 Jun 2018

See all articles by Andreas Hefti

Andreas Hefti

University of Zurich - Department of Economics; Zurich University of Applied Sciences

Steve Heinke

University of Basel

Frédéric Schneider

University of Cambridge - Judge Business School

Date Written: May 29, 18

Abstract

We develop and test a framework of mental information representation in an asset market setting. The model predicts heterogeneous trading behavior as a consequence of two distinct mental capabilities: analytical skills and mentalizing, where the former involves quantitative, objective aspects of a decision problem, and the latter an accurate assessment of others’ behavior and intentions. Individual differences in capabilities induce specific, differential trading patterns and performances, despite the availability of identical information. The most successful traders are strong in both capabilities, while the general relation between success and mental capabilities is non-monotone. The experimental data strongly supports the theoretical conjectures.

Keywords: Mentalizing, analytical capabilities, mental model, trading heterogeneity, asset markets, heterogeneity, mental capabilities

JEL Classification: G02, G41, C91, C92, D91

Suggested Citation

Hefti, Andreas M. and Heinke, Steve and Schneider, Frédéric, Mental Capabilities, Heterogeneous Trading Patterns and Performance in an Experimental Asset Market (May 29, 18). University of Zurich, Department of Economics, Working Paper No. 234. Available at SSRN: https://ssrn.com/abstract=2832767 or http://dx.doi.org/10.2139/ssrn.2832767

Andreas M. Hefti (Contact Author)

University of Zurich - Department of Economics ( email )

Zürich
Switzerland

Zurich University of Applied Sciences ( email )

Institut fuer Angewandte Medienwissenschaft
Zur Kesselschmiede 35
Winterthur, CH 8401
Switzerland

Steve Heinke

University of Basel ( email )

Missionsstrasse 62a
Basel, 4055
Switzerland

Frédéric Schneider

University of Cambridge - Judge Business School ( email )

Trumpington Street
Cambridge, CB2 1AG
United Kingdom

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