This document summarizes research into excessive risk taking in financial market experiments. It describes how experiments were conducted with groups of traders with different risk profiles, finding that groups of all men tended to take the most risks and create speculative states. A model called the $-Game is presented as a way to understand fluctuations and symmetry breaking seen in the experiments. The concept of using an agent-based model to measure the "temperature" of the market's internal state is also introduced.

1. Understanding Excessive
Risk Taking Seen in
Experiments on Financial
Markets
SYstemic Risk TOmography:
Signals, Measurements, Transmission Channels, and
Policy Interventions
Jørgen Vitting Andersen, CNRS,
Centre d’Economie de la Sorbonne, University of Paris 1.
CSRA research meeting – December, 15 2014

2. Understanding Excessive Risk Taking Seen in
Experiments on Financial Markets
• Jørgen Vitting Andersen, CNRS,
Centre d’Economie de la Sorbonne,
University of Paris 1.
• Research in progress, collaborators:
Yifang Liu, Philippe de Peretti, Maxim
Frolov, Roberto Savona, Hayette Gatfaoui,
Rania Kaffel

3. Individual versus collective risk taking
• Individual risks: Men are known to be more risk loving
compared to women. For real market traders see e.g. :
“Endogenous steroids and financial risk on a London
trading floor”, J. M. Coates and J. Herbert, PNAS, V.105,
16, 6167-72 (2008); “A note on trader Sharpe Ratios”, J.
M. Coates and L. Page, PLoSONE, V.4, 11, e8036 (2009)
• Collective risks: how does a group of traders with
heterogeneous risk profiles influence the formation of
market risks?

4. Setup of experiments
• Before each experiments individual risk profiles of participants were
obtained from lotteries (C. A. Holt, S. Laury, The American Economic
Review, V. 92, 1644 (2002)

5. Here’s what happens when a group of men
trade …

6. Next we let a group of women trade …

7. Looks similar to the group of men …

8. Then another group of women … initially this
group of women seem to trade differently…

9. And indeed in this experiment the group of
women creates a speculative state…

10. Their speculation however was « dwarfed »
compared to state created by yet another
group of men…

11. Claim: we need a fluctuation based framework in
order to be able to understand behavior seen in
experiments.

12. The $-Game

13. The $-Game

14. Results: simulations of the $G
Important: Symmetry break

15. Taking the «temperature» of the market: predicting big
price «swings »
• Internal state of water? Insert a thermometer into the
liquid.
• Internal state of market? «slave » an agent based model to
the price evolution.
• Market in a “hot” or “cold” state.

16. ACTION
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19. Christmas: for the person who has everything
here a suggestion of an « obvious » Christmas
gift ;)

26. All

27. Female

28. Male

29. This project has received funding from the European Union’s
Seventh Framework Programme for research, technological
development and demonstration under grant agreement n° 320270
www.syrtoproject.eu
This document reflects only the author’s views.
The European Union is not liable for any use that may be made of the information contained therein.