Professional training 'in the wild' overrides laboratory decision preferences

Jan 29, 2013

Many simulation-based studies have been conducted, and theories developed, about the behaviors of financial market traders. New work by human factors/ergonomics (HF/E) researchers suggests that decision-making research on the behavior of traders conducted "in the wild" (i.e., real-world situations) can offer an alternative lens that extends laboratory insights and provokes new questions.

In their article in the Journal of Cognitive Engineering and Decision Making, "Understanding Preferences in Experience-Based Choice," authors Claire McAndrew (University College London) and Julie Gore (University of Surrey) examined the gap between the decision-making preferences of "in the wild" compared to laboratory experimentation where the probabilities of outcomes are known (prospect theory).

The authors conducted in-depth interviews about past financial trading decisions with eight traders to understand how decisions were made. All participants were employed by firms authorized and regulated by the UK Financial Services Authority and had, on average, 10.9 years of experience. The traders' decision-making processes were tracked step by step, focusing on their risk-seeking or risk-adverse behavior with respect to the probability of gains and losses.

"What we found is that professional training provides distinct objectives and goals that override preferences generated in the laboratory," said McAndrew. The study found that traders were risk adverse to three of the four scenarios compared with only two of four in the same scenarios suggested by prospect theory.

"Recognition of the interplay of the professional, task, and environment are clearly documented, which is often simply not possible in laboratory settings," said McAndrew. Whereas laboratory studies can be designed to emulate real-world conditions, trading markets are complicated and . The shifting, ill-defined, or competing issues that characterize trader environments are difficult to reproduce in laboratory studies. Many previous lab-based studies on financial traders could be augmented by "in the wild" examination.

This insight into real-world decision-making behavior has consequences for the design of instructional training for novices and has the potential to minimize costly mistakes. Changes in professional training might extend to other complex sociotechnical systems, such as aviation, the military, and nursing – domains where experts, like stock traders, are similarly risk averse except when faced with large-probability gains.

Explore further: Oceans apart: Study reveals insights into the evolution of languages

add to favorites email to friend print save as pdf

Related Stories

US imposes new rules on high-speed traders

Jul 26, 2011

US regulators on Tuesday announced new rules aimed at shedding light on the secretive industry of computerized high-speed trading, which has been blamed for destabilizing financial markets.

Algorithmic trading to replace humans in the stock market

Sep 14, 2011

(PhysOrg.com) -- The UK Government’s Foresight panel, led by Dame Clara Furse, has released a working paper that points out that algorithmic trading, or high frequency trading, will soon replace human decision making when it comes to the stock ...

Recommended for you

Modern population boom traced to pre-industrial roots

1 hour ago

The foundation of the human population explosion, commonly attributed to a sudden surge in industrialization and public health during the 18th and 19th centuries, was actually laid as far back as 2,000 years ...

Researcher looks at the future of higher education

1 hour ago

Most forecasts about the future of higher education have focused on how the institutions themselves will be affected – including the possibility of less demand for classes on campus and fewer tenured faculty members as ...

Now we know why it's so hard to deceive children

2 hours ago

Daily interactions require bargaining, be it for food, money or even making plans. These situations inevitably lead to a conflict of interest as both parties seek to maximise their gains. To deal with them, ...

User comments : 0