Do Professional Traders Exhibit Myopic Loss Aversion? An Experimental Analysis

Two behavioral concepts, loss aversion and mental accounting, have recently been combined to provide a theoretical explanation of the equity premium puzzle. Recent experimental evidence suggests that undergraduate students’ behavior is consistent with this “myopic loss aversion” conjecture. Our suspicion is that, much like certain anomalies in the realm of riskless decisions, these behavioral tendencies will be severely attenuated when real market players are put to the task. Making use of a unique subject pool—professional futures and options pit traders recruited from the Chicago Board of Trade—we do find behavioral differences between professionals and students. Yet, rather than discovering that the anomaly disappears, the data suggest that professional traders exhibit myopic loss aversion to a greater extent than undergraduate students.