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
Date Written: May 29, 18
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: Suggested Citation