Cognitive Abilities and Individual Earnings in Hybrid Continuous Double Auctions

Yan Peng (), Jason Shachat, Lijia Wei () and S. Sarah Zhang
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Yan Peng: Xiamen University
Lijia Wei: Wuhan University

Working Papers from Chapman University, Economic Science Institute

Abstract: We study the influence of cognitive abilities, in particular reaction time, trader intuition (Theory of Mind), and cognitive reflection abilities, on human participants’ individual earnings when competing alongside algorithmic traders in continuous double auctions. In balanced markets, where each human trader has an algorithmic trader clone with the same valuations or costs, faster human reaction time significantly improves trading performance, while Theory of Mind can be detrimental to human trading performance, particularly for sellers. For unbalanced markets with humans and algorithmic traders on opposite sides of the market, the effects of cognitive abilities depend on trader role as well as agent presence and speed, highlighting the influence of market balance and agent presence and speed on trading success and earnings.

Keywords: Trading agents; Cognitive abilities; Algorithmic trading; Laboratory experiment (search for similar items in EconPapers)
JEL-codes: C78 C92 D40 (search for similar items in EconPapers)
Date: 2024
New Economics Papers: this item is included in nep-exp and nep-neu
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Persistent link: https://EconPapers.repec.org/RePEc:chu:wpaper:24-05

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