Trading Up

More and more of us follow the gyrations of the stock market on a regular basis, usually with hope rather than conviction that we know what to expect from it. Now, it has long been a business axiom that hope is not a strategy for success, but nevertheless we harbor it as we think what to do about any savings that we have still managed to cling to.

Trading is a practice, which we indulge in early in our lifetimes and we sometimes learned to be fair and to trust our trading partners, those of us who didn’t, either came to a bad end or became super rich or politicians. At what age do we learn to be canny but honest (of course) traders?

The answer to that telling question is at hand. Steelandt and her colleagues from U de Strasbourg have published their research on trading youngsters in this week’s PloSONE (1). They played a trading game with 3-year olds, 5-year olds, 7-year olds and 10-year olds. They didn’t play for money, of course, but the played for small candies.

Each child was introduced to two trading partners sequentially. One partner offered a return of double the number of candies invested, while the other offered a fixed return regardless of how much was invested. In addition the youngsters had the choice of eating into their assets. Sixteen little girls and sixteen little boys don’t make a large trading floor, but it’s a start.

To maximize one’s profits the trading strategy with one partner was to maximize the investment to get double, but with the other partner the minimum investment got the same pay out so profits were maximized by minimum outlay. The 7 and 10-year olds were all able to grasp that concept, although they sometimes didn’t follow the logic and gave a justification for a bad-trading decision.

About a third of the 5-year olds managed to do well as successful traders but none of the 3-year olds managed to optimize their returns by adjusting their offers. They seemed to trust the trading floor to treat them generously and took what they were handed down without question.

Similar experiments with non-human primates, namely capuchins and macaques resulted in similar performance traits to the 3-year old humans. Having read some investment proposals over the past years, I wonder if some of the financial wunderkinder think we are either all 3-year olds or monkeys.


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