Do Professional Traders Exhibit Myopic Loss Aversion? An Experimental Analysis
Open accessAbstract
Two behavioral concepts, loss aversion and mental accounting, have been combined to provide a theoretical explanation of the equity premium puzzle. Recent experimental evidence supports the theory, as students' behavior has been found to be consistent with myopic loss aversion (MLA). Yet, much like certain anomalies in the realm of riskless decision‐making, these behavioral tendencies may be attenuated among professionals. Using traders recruited from the CBOT, we do indeed find behavioral differences between professionals and students, but rather than discovering that the anomaly is muted, we find that traders exhibit behavior consistent with MLA to a greater extent than students.
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Loss aversion has been well documented in the laboratory and in many field settings, including high-stakes game show decisions, financial markets, politics, trade policy for declining industries, rate of organ donation for transplant cases, and monkey behavior.
“Loss aversion has been well documented in the laboratory and in many field settings (2), including high-stakes game show decisions (3), financial markets (4), politics (5), trade policy for declining industries (6), rate of organ donation for transplant cases (7) and has also been evident in monkey behavior (8).”
From Amygdala damage eliminates monetary loss aversion (2010) · cites this paper as [4]
Real-world data show loss-averse behavior in stock markets, pricing and purchasing of consumables and condominiums, and choice of work hours by cabdrivers.
“This work has been supported by analyses of real world data that show similar behavior in, among other situations, stock markets (26–28), the pricing and purchasing of consumables (29, 30) and condominiums (31), and the choice of work hours by cabdrivers (32).”
From Thinking like a trader selectively reduces individuals' loss aversion (2009) · cites this paper as [27]
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Thinking like a trader selectively reduces individuals' loss aversion
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Amygdala damage eliminates monetary loss aversion
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- Authors
- HAIGH, M. S., & LIST, J. A.
- Affiliations
- Commodity Futures Trading Commission (US)
- Corresponding author
- LIST, JOHN A.
- ORCID
- LIST, JOHN A.
- Venue
- The Journal of Finance
- Publisher
- Wiley
- Published
- 2005-02
- Volume
- 60
- Issue
- 1
- Pages
- 523-534
- ISSN
- 0022-1082 (ISSN-L)
- 1540-6261
- OpenAlex
- W2165584372
- Cited by
- 754
- References
- 21
- Citations by year
- 2026: 19 · 2025: 39 · 2024: 22 · 2023: 33 · 2022: 40 · 2021: 54 · 2020: 31 · 2019: 40 · 2018: 43 · 2017: 33 · 2016: 49 · 2015: 36 · 2014: 35 · 2013: 43 · 2012: 43
- FWCI
- 18.87
- Type
- journal article
- Language
- en
- Open access
- green
- ageconsearch.umn.edu
- Licence
- Locations
- The Journal of Finance (publishedVersion)
- RePEc: Research Papers in Economics (submittedVersion)
- AgEcon Search (University of Minnesota, USA) (submittedVersion, cc-by-nc-nd)
- AgEcon Search (University of Minnesota, USA)
- Topics
- Social Sciences › Decision Sciences › General Decision Sciences › Decision-Making and Behavioral Economics
- Social Sciences › Economics, Econometrics and Finance › Finance › Financial Markets and Investment Strategies
- Social Sciences › Safety Research › Experimental Behavioral Economics Studies
- Keywords
- myopic loss aversion, loss aversion, mental accounting, equity premium puzzle, professional traders, behavioral finance
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