About The Psychology of Trading Behavior

I am interested in the psychological processes that affect how people trade risky stocks and how much of their wealth they allocate to such stocks. I am planning to invite people to the Exelon trading lab and play trading games as well as answer questions related to their personality, ability and background. With the help of faculty in finance and marketing I hope to understand what psychological processes are relevant to the phenomenon we are testing, which is when and why people trade risky stocks.

The idea for this project came about after I had taken a marketing class on Consumer Behavior. A major component of this class was the discussion of the various biases that humans have which affect their buying decisions. I took this idea and thought about how it could apply to making of rational investing decisions. After learning about the Efficient Market Hypothesis, I determined that the ideas preached in Consumer Behavior with respect to biased purchasing decisions contradicts one of the foundations of the EMH, the idea that investors make rational decisions.

I then approached my Consumer Behavior professor, Michal Herzenstein, and proposed researching the psychology of trading behavior with a focus on irrational decision making. Professor Herzenstein then suggested we ask Professor Jay Coughenour (Finance Department’s Chair) to join our research. After finding an interesting research question, our project has now reached the experimental stage.

Resources needed: We need funds to allow us to hire talent to program the trading game (that is designed for our research purposes). No available off-the-shelf software that the Exelon lab has can do what we need in this research. We may need additional funds to pay participants in the experiment.