Presenter: Sandro Ambühl, University of Zurich

Title: Is Trading Hazardous to Your Utlity?

Abstract: We use a framed field experiment to study the quality of trading decisions undertaken by small individual investors of the type who trade on platforms such as Robinhood. Our design allows us to assess the extent to which investors’ choices further their own objectives, in that we compare the choices they make to those they would have made if they properly understood the implications of their actions for the distribution of their payoffs. We find that trading actively, and delegating with strategic instructions, both improve upon random trading, but only to a relatively modest degree, in the sense that traders do not achieve most of the available welfare gains. Even though active trading strategies often diverge substantially from trading instructions when delegating, active trading does not significantly increase welfare losses relative to delegation. We also study the relationships between the quality of trading decisions and factors such as trading style, financial literacy, and susceptibility to specific belief fallacies.

Host: Antonia Grohmann