A theoretical framework for trading experiments

Maxence Soumare, Jørgen Vitting Andersen (), Francis Bouchard, Alain Elkaim, Dominique Guegan (), Justin Leroux, Michel Miniconi () and Lars Stentoft
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Maxence Soumare: JAD - Laboratoire Jean Alexandre Dieudonné - UNS - Université Nice Sophia Antipolis (1965 - 2019) - CNRS - Centre National de la Recherche Scientifique
Jørgen Vitting Andersen: CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique
Francis Bouchard: HEC Montréal - HEC Montréal
Alain Elkaim: HEC Montréal - HEC Montréal
Dominique Guegan: CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique
Michel Miniconi: JAD - Laboratoire Jean Alexandre Dieudonné - UNS - Université Nice Sophia Antipolis (1965 - 2019) - CNRS - Centre National de la Recherche Scientifique

Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) from HAL

Abstract: A general framework is suggested to describe human decision making in a certain class of experiments performed in a trading laboratory. We are in particular interested in discerning between two different moods, or states of the investors, corresponding to investors using fundemental investment strategies, technical analysis investment strategies respectively. Our framework accounts for two opposite situations already encountered in experimental setups : i) the rational expectations case, and ii) the case of pure speculation. We consider new experimental conditions which allow both elements to be present in the decision making process of the traders, thereby creating a dilemma in terms of investment strategy. Our theoretical framework allows us to predict the outcome of this type of trading experiments, depending on such variables as the number of people trading, the liquidity of the market, the amount of information used in technical analysis strategies, as well as the dividends attributed to an asset. We find that it is possible to give a qualitative prediction of trading behavior depending on a ratio that quantifies the fluctuations in the model.

Keywords: Decision making; game theory; complex systems theory; technical analysis; rational expectations; Théorie des jeux (search for similar items in EconPapers)
Date: 2012-11
New Economics Papers: this item is included in nep-exp and nep-int
Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-00768898v1
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Published in 2012

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Related works:
Working Paper: A theoretical framework for trading experiments (2013)
Working Paper: A theoretical framework for trading experiments (2012)
Working Paper: A theoretical framework for trading experiments (2012)
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