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What Makes a Good Trader? On the Role of Intuition and Reflection on Trader Performance

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  • BRICE CORGNET
  • MARK DESANTIS
  • DAVID PORTER
Abstract
Using laboratory experiments, we provide evidence on three factors influencing trader performance: fluid intelligence, cognitive reflection, and theory of mind (ToM). Fluid intelligence provides traders with computational skills necessary to draw a statistical inference. Cognitive reflection helps traders avoid behavioral biases and thereby extract signals from market orders and update their prior beliefs accordingly. ToM describes the degree to which traders correctly assess the informational content of orders. We show that cognitive reflection and ToM are complementary because traders benefit from understanding signals’ quality only if they are capable of processing these signals.

Suggested Citation

  • Brice Corgnet & Mark Desantis & David Porter, 2018. "What Makes a Good Trader? On the Role of Intuition and Reflection on Trader Performance," Journal of Finance, American Finance Association, vol. 73(3), pages 1113-1137, June.
    • Handle: RePEc:bla:jfinan:v:73:y:2018:i:3:p:1113-1137
    DOI: 10.1111/jofi.12619
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    JEL classification:

    • C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
    • G02 - Financial Economics - - General - - - Behavioral Finance: Underlying Principles

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