Łukasz Markiewicz

DOSPERT's Gambling Risk-Taking Propensity Scale Predicts Excessive Stock Trading

Using a data set that combines trading records in a financial investment simulation with survey responses, this study provides evidence that a domain-specific variant of risk-taking propensity, namely risk taking in gambling (but not in investing) situations, predicts the volume of trades of financial investors. We find that investors’ gambling risk-taking propensity, measured by the Weber, Blais, and Betz [2002], Domain-Specific-Risk-Taking (DOSPERT) gambling subscale, increases the number of trades made and hence transaction costs, as well as the extent of their day trading. The short (four-item) gambling risk-taking propensity DOSPERT subscale thus provides a useful diagnostic addition to risk attitude assessment instruments for private investors.

Disposition Effect Among Contrarian and Momentum Investors

We provide evidence of disposition effect propensity for stock trading simulation participants employing a contrarian versus a momentum strategy. We found that even subjects playing with chips rather than real money remain vulnerable to those effects. Both tendencies were generally evident in our sample, but we also found individual differences. Subjects seemed to be contrarians both on position opening and on position closing. The main hypothesis of this paper states that contrarian investors are more prone to the disposition effect than are momentum traders. The model proposed by Dacey and Zielonka [2008] plays a crucial role in formulating this hypothesis. We consider the disposition effect not only in terms of the value function but also of the probability weighting function. In accordance with our hypothesis, we found that contrarian traders are more prone to the disposition effect.

Introducing conjoint analysis method into delayed lotteries studies: its validity and time stability are higher than in adjusting

The delayed lotteries are much more common in everyday life than are pure lotteries. Usually, we need to wait to find out the outcome of the risky decision (e.g., investing in a stock market, engaging in a relationship). However, most research has studied the time discounting and probability discounting in isolation using the methodologies designed specifically to track changes in one parameter. Most commonly used method is adjusting, but its reported validity and time stability in research on discounting are suboptimal. The goal of this study was to introduce the novel method for analyzing delayed lotteries—conjoint analysis—which hypothetically is more suitable for analyzing individual preferences in this area. A set of two studies compared the conjoint analysis with adjusting. The results suggest that individual parameters of discounting strength estimated with conjoint have higher predictive value (Study 1 and 2), and they are more stable over time (Study 2) compared to adjusting. We discuss these findings, despite the exploratory character of reported studies, by suggesting that future research on delayed lotteries should be cross-validated using both methods.

You Cannot be Partially Pregnant: A Comparison of Divisible and Nondivisible Outcomes in Delay and Probability Discounting Studies

Research by The Psychological Record, 64(3), 433–440. doi:10.1007/s40732-014-0052-9, (2014) demonstrated the novel finding that the magnitude effect for medical outcomes does not reverse across delay and probability discounting as it does for monetary outcomes. We suggest that a possible reason for the lack of a reverse magnitude effect in nonmonetary outcomes is incomparable divisibility of discounted alternatives.To test whether the lack of a reverse magnitude effect in probability discounting of medical outcomes is due to incomparable divisibility of treatment effects, 4 studies were conducted. In the replication study, the effect observed by The Psychological Record, 64(3), 433–440. doi:10.1007/s40732-014-0052-9, (2014) was marginally not significant, although it was directionally consistent with their prediction of steeper discounting of small medical outcomes (as compared to large, defined as brain cancer) both in time and probability discounting. Our manipulation by substituting a divisible outcome (body paralysis) for an indivisible one (brain cancer) did not, however, bring expected results. We discuss the explanations and possible implications of introduced division for divisible and nondivisible medical outcomes.

Conjoint jako metoda pomiaru preferencji odroczonych loterii – komunikat z badań

The major purpose of the paper is considering the possibility of using conjoint analysis in postponed lotteries research. The role of conjoint measurement theory in mathematical psychology is reviewed. Next, the conjoint data analysis method is elaborated; this method is derived from conjoint measurement theory and it is very popular in market research. The focus is on two versions: traditional Conjoint Value Analysis (CVA) and Choice-Based Conjoint (CBC). The results of this research show that changes in the scope of the likelihood of payment, rather than changes in the dimension of deferral, more strongly determine the choices made.

A belief in trend reversal requires access to cognitive resources

ABSTRACT There are two research traditions studying peoples reactions to random binary events: one concerns serial choice reaction times, the other concerns predictions of events in a series. The present studies focused on comparing expectations between these two approaches. We formed and tested a general hypothesis that, regardless of the type of task, when an individual faces a sequence of events they initially expect trend continuation. Only when people assume that a sequence is random might they override the default and expect trend reversal instead. In a series of experiments we found that limitation of access to cognitive resources enhances expectations of trend continuation. Our interpretation of this finding is that an expectation of trend continuation is the default for the human cognitive system and that a belief in trend reversal requires access to cognitive resources to overcome the tendency to expect trend continuation.

Confounding dynamic risk taking propensity with a momentum prognostic strategy: the case of the Columbia Card Task (CCT).

Figner et al. (2009) developed the Columbia Card Task (CCT) to measure risk-taking attitudes. This tool consists of two versions: in the COLD version the decision maker needs to state in advance how many cards (out of 32) they want to turn over (so called static risk taking), in the HOT version they have the possibility of turning over all 32 cards one-by-one until they decide to finish (dynamic risk taking). We argue that the HOT version confounds an individual’s willingness to accept risk with their beliefs in trend continuation vs. trend reversal in a prognostic task. In two experimental studies we show that people believing in trend continuation (momentum subjects) turn over more cards than those believing in trend reversal (contrarians) in the HOT version of the task. However, this is not the case in the COLD version. Thus, we provide evidence that, when considered as a dynamic risk propensity measure, the number of turned over cards in the HOT version of the CCT is a contaminated measure and reflects two phenomena: (1) risk preference and (2) the decision-maker’s belief in trend continuation. We speculate that other dynamic risk taking measures can also be biased by a momentum strategy.

What Makes Technical Analysis Popular

According to the Efficient Market Hypothesis, investors cannot achieve above-average returns by using technical analysis tools. This paper attempts to answer the question as to what makes technical analysis popular, regardless of the efficiency of capital markets. The objective is to verify whether investors have certain cognitive inclinations that make them more likely to believe in the efficiency of technical analysis models. We postulate a positive relationship between different forms of overconfidence and faith in the effectiveness of technical analysis methods. This relationship was confirmed only in the case of the “better than average” effect. The two other examined forms of overconfidence, namely, overprecision and illusion of control, did not yield statistically significant results. However, the lack of confirmation by all three forms of overconfidence is in line with the results presented in the literature, namely, that there are no significant relationships between different forms of overconfidence.

On the Need for Cognitive Closure and Judgmental Trend Forecasting

The paper considers the following hypothesis: humans’ need for cognitive closure reduces the usage of historical observations in judgmental forecasts only in horizontal trends. To test this hypothesis, three studies were conducted. In each, participants forecasted the next, unknown observation using the previous time series. The analysis concentrated on trend analysis and how the trends in historical data are used as the basis for forecasting depending on psychological traits, in particular cognitive closure.

Technical Analysis as a Rational Tool of Decision Making for Professional Traders

ABSTRACT The psychological background of technical analysis usage is investigated to further explain the popularity and common usage of technical analysis as an investment decision tool. Attitudes toward technical analysis of professional futures market traders and neophyte investors, represented by finance students, were examined. Technical analysis is one of the most popular methods supporting investment decisions and it is much more popular among future market traders than among neophyte investors. The concept of processing information was used to explain this phenomenon. Neophyte investors are more experiential and intuition-driven while using technical analysis models, while futures market traders are more rationally driven. Technical analysis methods help professional traders on futures markets, which are less transparent than regulated stock markets, to process information; those methods are perceived by them as rational, cognitive tools supporting their decision making.