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Market imitation and win-stay lose-shift strategies emerge as unintended patterns in market direction guesses
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Preis, Tobias, Gutierrez-Roig , Mario, Segura, Carlota, Duch, Jordi and Perelló, Josep (2016) Market imitation and win-stay lose-shift strategies emerge as unintended patterns in market direction guesses. PLoS One, 11 (8). e0159078. doi:10.1371/journal.pone.0159078 ISSN 1932-6203.
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Official URL: http://dx.doi.org/10.1371/journal.pone.0159078
Abstract
Decisions made in our everyday lives are based on a wide variety of information so it is generally very difficult to assess what are the strategies that guide us. Stock market provides a rich environment to study how people make decisions since responding to market uncertainty needs a constant update of these strategies. For this purpose, we run a lab-in-the-field experiment where volunteers are given a controlled set of financial information -based on real data from worldwide financial indices- and they are required to guess whether the market price would go “up” or “down” in each situation. From the data collected we explore basic statistical traits, behavioural biases and emerging strategies. In particular, we detect unintended patterns of behavior through consistent actions, which can be interpreted as Market Imitation and Win-Stay Lose-Shift emerging strategies, with Market Imitation being the most dominant. We also observe that these strategies are affected by external factors: the expert advice, the lack of information or an information overload reinforce the use of these intuitive strategies, while the probability to follow them significantly decreases when subjects spends more time to make a decision. The cohort analysis shows that women and children are more prone to use such strategies although their performance is not undermined. Our results are of interest for better handling clients expectations of trading companies, to avoid behavioural anomalies in financial analysts decisions and to improve not only the design of markets but also the trading digital interfaces where information is set down. Strategies and behavioural biases observed can also be translated into new agent based modelling or stochastic price dynamics to better understand financial bubbles or the effects of asymmetric risk perception to price drops.
Item Type: | Journal Article | |||||||||||||||||||||
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Subjects: | H Social Sciences > HG Finance | |||||||||||||||||||||
Divisions: | Faculty of Social Sciences > Warwick Business School > Behavioural Science Faculty of Social Sciences > Warwick Business School |
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Library of Congress Subject Headings (LCSH): | Stock exchanges -- Decision making -- Psychological aspects | |||||||||||||||||||||
Journal or Publication Title: | PLoS One | |||||||||||||||||||||
Publisher: | Public Library of Science | |||||||||||||||||||||
ISSN: | 1932-6203 | |||||||||||||||||||||
Official Date: | 17 August 2016 | |||||||||||||||||||||
Dates: |
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Volume: | 11 | |||||||||||||||||||||
Number: | 8 | |||||||||||||||||||||
Article Number: | e0159078 | |||||||||||||||||||||
DOI: | 10.1371/journal.pone.0159078 | |||||||||||||||||||||
Status: | Peer Reviewed | |||||||||||||||||||||
Publication Status: | Published | |||||||||||||||||||||
Access rights to Published version: | Open Access (Creative Commons) | |||||||||||||||||||||
Date of first compliant deposit: | 20 November 2017 | |||||||||||||||||||||
Date of first compliant Open Access: | 20 November 2017 | |||||||||||||||||||||
RIOXX Funder/Project Grant: |
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