Narrow framing: Professions, sophistication, and experience

✍ Scribed by Yu-Jane Liu; Ming-Chun Wang; Longkai Zhao

• Publisher: John Wiley and Sons
• Year: 2009
• Tongue: English
• Weight: 203 KB
• Volume: 30
• Category: Article
• ISSN: 0270-7314
• DOI: 10.1002/fut.20407

✦ Synopsis

Abstract

We document support for the narrow framing effect proposed by Tversky, A. and Kahneman, D. (1981). Our findings that traders in an options market frame complicated investment decisions into simpler ones support the narrow framing effect. Traders' professionalism, sophistication, and trading experience are negatively correlated with the degree of narrow framing, implying that these factors help to reduce investors' behavioral bias. Our study bridges the gap between the psychological literature and financial literature in terms of the relationship between experience/sophistication and narrow framing. The article sheds light on the decision‐making process in an options market, and the relationship between narrow framing and sophistication/experience. © 2009 Wiley Periodicals, Inc. Jrl Fut Mark 30:203–229, 2010