Number sense, trading decisions and mispricing: An experiment

Tristan Roger, Patrick Roger and Marc Willinger

Journal of Economic Dynamics and Control, 2022, vol. 135, issue C

Abstract: We show that the acuity of the Approximate Number System (ANS), a cognitive system that allows humans and many animal species to evaluate quantities without using exact calculations, is a strong predictor of subjects’ earnings in experimental markets. We measure ANS acuity with a bounded number line estimation (NLE) task and find that subjects who perform better on the NLE task, obtain higher earnings in a continuous double auction experimental market. We underline two channels through which high ANS acuity subjects achieve better performance: they are rewarded for offering liquidity and are faster at exploiting trading opportunities. We also show that, in a given market, the distribution of NLE scores influences mispricing. Our results are unchanged when we control for differences in trading intensity, risk aversion, background education or demographic characteristics.

Keywords: Experimental markets; Number line estimation (NLE); Number sense; Trading performance; Mispricing (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:dyncon:v:135:y:2022:i:c:s0165188921002281

DOI: 10.1016/j.jedc.2021.104293

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