What is the critical success factor for experienced traders? In their December 2022 paper entitled "Strategic Sophistication and Trading Profits: An Experiment with Professional Traders", Marco Angrisani, Marco Cipriani and Antonio Guarino compare results from a competitive trading game, a competitive guessing game and individual cognitive/risk preference/personality tests to determine what characteristics most strongly relate to trading success. They recruit two groups for testing: (1) professional traders and portfolio managers working in London financial markets; and, (2) as a control, a gender-matched (mostly male), multi-disciplinary group of undergraduate students with little or no experience trading real markets. For each group, they conduct:
- A competitive group trading game wherein participants trade an asset that earns dividends over multiple periods in a continuous double auction. Profits derive from both dividends accrued (fundamental value) and any capital gain (ability to outwit other players by buying low and selling high).
- A competitive group guessing game wherein each participant chooses a number from 0 to 100 with the goal of guessing the number is closest to two thirds of the average choice. Choices reveal how deeply participants reflect on the thinking of others.
- An individual guessing game (to disentangle reasons for group guessing game outcomes), two tests of cognitive ability (intelligence), tests to elicit risk preferences/confidence and personality traits.
Using game/test results for 56 professional traders and 56 undergraduate students, they find that:
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