TY  - JOUR
AU  - Lo,Andrew W.
AU  - Repin,Dmitry V.
TI  - The Psychophysiology of Real-Time Financial Risk Processing
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 8508
PY  - 2001
Y2  - October 2001
UR  - http://www.nber.org/papers/w8508
L1  - http://www.nber.org/papers/w8508.pdf
N1  - Author contact info:
Andrew W. Lo
MIT Sloan School of Management
100 Main Street, E62-618
Cambridge, MA  02142
Tel: 617/253-0920
Fax: 781/891-9783
E-Mail: alo@mit.edu
AB  - 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 decisionmaking 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 defined.  In a sample of 10 traders, we find significant correlation between electrodermal responses and transient market events, and between changes in cardiovascular variables and market volatility.  We also observe differences in these correlations among the 10 traders which may be systematically related to the traders' levels of experience.
ER  -