PROFESSIONAL TRADERS AS INTUITIVE BAYESIANS

We compare the behavior of laboratory markets populated by experienced commodity and stock traders with the behavior of markets populated by MBA student traders. Unlike previous research, subject experience is a treatment variable in our experiment. Trading experience is found to be an important determinant of how well market outcomes approximate equilibrium predictions. Markets with student traders exhibit biases consistent with the prior literature; bias levels in markets with experienced traders are substantially reduced and trend toward zero. These market level results are confirmed with individual level tests. However, we cannot unambiguously determine whether the market outcomes with experienced traders are better organized using Bayes' rule or by a heuristic-base rate neglect. (C) 1995 Academic Press, Inc