Monday, August 24, 2015

#blackmonday is trending but is it rational? – The Psychophysiology of Real-Time Financial Risk Processing

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.

via MIT Press Journals – Journal of Cognitive Neuroscience – Abstract.

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