Abstract
The current study investigated differences in decision-making style and risk-taking between financial traders, non-trading bank employees, and people not working in finance. Traders scored significantly higher than participants in the other two groups on the cognitive reflection test (CRT) which measures the tendency to inhibit automatic but frequently false responses in reasoning tasks. Scores for traders compared to people outside the banking sector were also higher on a self-rated scale for reflective thinking in decision-making, but there were no differences in self-rated intuitive thinking between groups. Financial risk-taking correlated with cognitive reflection scores and was significantly lower in the non-expert group compared to the other groups working in financial services. Traders in the current study showed no elevated preference to use ‘intuition’ in their decision-making compared to other groups. Overall, these results indicate that compared to non-expert participants financial traders have a higher self-rated tendency for reflective thinking and a greater propensity to inhibit the use of mental shortcuts (heuristics) in decision-making.
Highlights
Are financial experts good decision-makers? This question has become a major focus of public and scientific attention in the decade following global market phenomena such as the “dotcom” bubble and the 2007 financial credit crisis [1]
The current analysis is limited to the four main variables that were measured with equivalent scales in all groups: Rationality (REI-R), experientiality (REI-E), financial risk-taking, and cognitive reflection test (CRT)
The current study asked whether there are differences in analytic thinking ability, decision-making style, and financial risk-taking between financial traders, a non-trader sample employed in the banking sector, and a general population group
Summary
Are financial experts good decision-makers? This question has become a major focus of public and scientific attention in the decade following global market phenomena such as the “dotcom” bubble and the 2007 financial credit crisis [1]. —in contrast to predictions from the dual systems framework—‘gut feelings’ and ‘intuition’ can be considered potential useful mechanisms or cognitive adaptations to the tasks traders have to regularly perform [36], [37] For this reason, we have included two different expert groups (traders and non-trader bankers) to be compared with a sample of people not related to the financial world. We found that while traders were no different in their self-reported use of ‘intuition’ or ‘gut feeling’ to other people, they showed higher propensity and ability to engage in reflective thinking than the participants without a finance background, and scored higher than non-trading bankers on self-rated rationality in their thinking style. All participants completed an online questionnaire, which comprised several inventories and tasks, detailed below
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