Gazing through the bubble: an experimental investigation into financial risk-taking using eye-tracking

Filip-Mihai Toma (), Cosmin-Octavian Cepoi, Matei Nicolae Kubinschi and Makoto Miyakoshi
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Filip-Mihai Toma: NEXARCH Lab
Cosmin-Octavian Cepoi: Bucharest University of Economic Studies
Matei Nicolae Kubinschi: Bucharest University of Economic Studies
Makoto Miyakoshi: University of California San Diego

Financial Innovation, 2023, vol. 9, issue 1, 1-27

Abstract: Abstract Eye tracking can facilitate understanding irrational decision-making in contexts such as financial risk-taking. For this purpose, we develop an experimental framework in which participants trade a risky asset in a simulated bubble market to maximize individual returns while their eye movements are recorded. Returns are sensitive to eye movement dynamics, depending on the presented visual stimuli. Using eye-tracking data, we investigated the effects of arousal, attention, and disengagement on individual payoffs using linear and nonlinear approaches. By estimating a nonlinear model using attention as a threshold variable, our results suggest that arousal positively influences trading returns, but its effect becomes smaller when attention exceeds a certain threshold, whereas disengagement has a higher negative impact on reduced attention levels and becomes almost irrelevant when attention increases. Hence, we provide a neurobehavioral metric as a function of attention that predicts financial gains in boom-and-bust scenarios. This study serves as a proof-of-concept for developing future psychometric measures to enhance decision-making.

Keywords: Financial bubble; Experiment; Risk-taking; Eye-tracking; Attention; Arousal (search for similar items in EconPapers)
JEL-codes: D87 D91 G10 G40 G41 (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (2)

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DOI: 10.1186/s40854-022-00444-4

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