The Psychophysiology of Real-Time Financial Risk Processing

Andrew Lo () and Dmitry V. Repin

No 8508, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: A longstanding controversy in economics and finance is whether financial markets are governed by rational forces or by emotional responses. We study the importance of emotion in the decisionmaking process of professional securities traders by measuring their physiological characteristics, e.g., skin conductance, blood volume pulse, etc., during live trading sessions while simultaneously capturing real-time prices from which market events can be defined. In a sample of 10 traders, we find significant correlation between electrodermal responses and transient market events, and between changes in cardiovascular variables and market volatility. We also observe differences in these correlations among the 10 traders which may be systematically related to the traders' levels of experience.

JEL-codes: G10 G14 (search for similar items in EconPapers)
Date: 2001-10
New Economics Papers: this item is included in nep-fmk
Note: AP
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Published as Lo, Andrew W. and Dmitry V. Repin. "The Psychophysiology of Real-Time Financial Risk Processing." Journal of Cognitive Neuroscience 14, 3 (April 1, 2002): 323-339.

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