The psychophysiology of real-time financial risk processing.
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 decision-making 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 detected. In a sample of 10 traders, we find statistically significant differences in mean electrodermal responses during transient market events relative to no-event control periods, and statistically significant mean changes in cardiovascular variables during periods of heightened market volatility relative to normal-volatility control periods. We also observe significant differences in these physiological responses across the 10 traders that may be systematically related to the traders' levels of experience.
Lo
Andrew W
AW
MIT Sloan School of Management, 50 Memorial Drive, E52-432, Cambridge, MA 02142, USA. alo@mit.edu
Repin
Dmitry V
DV
D001794:Blood Pressure; D003071:Cognition / Q000502:physiology*; D003132:Commerce; D004576:Electromyography; D004644:Emotions / Q000502:physiology*; D005260:Female; D005712:Galvanic Skin Response; D006339:Heart Rate; D006801:Humans; D007449:Investments; D008297:Male; D018803:Models, Economic; D012309:Risk-Taking