Studying attention in financial markets

Studying attention in financial markets

Jose Benedicto Duhaylongsod ESSEC Business School

With the growing prominence of behavioral research in business, social sciences, and management, ESSEC has built a Data Lab, a facility designed to conduct experiments in a controlled environment. More recently, ESSEC has invested in advanced behavioral research technology, particularly, the eye-tracking (Tobii Pro Studio), facial recognition (FaceReader™) and observational/behavioral analysis (The Observer® XT) software. Although already established in marketing, the use of these technologies in other fields like management, economics, operations management, and finance opens up a plethora of research opportunities.

With my recent involvement at the ESSEC Research Center, I was fortunate enough to have some first-hand experience with organizing experiments using the software mentioned above, among other things. As a Ph.D. student that does behavioral studies and a researcher in the nascent stage of his career, my exposure to a wide range of research methodologies and practices has enriched my current Ph.D. experience.

With Prof. François Longin (Finance Department) and Prof. Santacreu-Vasut (Economics Department), I organized a series of experiments to study the attention of traders in financial markets. We use the simulation tool called SimTrade in order to see where traders focus their attention when they make their financial decisions. Although economic models assume that individuals are rational and process information in the most efficient way to make their decisions, this is certainly not the case in the real world. See the article “Limited Attention” by Sonya S. Lim and Siew Hong Teoh in “Behavioral Finance: Investors, Corporations, and Markets” Wiley Handbook edited by Kent H. Baker and John R. Nofsinger.

Eye tracking

Tobii Pro Studio is the on-screen based software that creates and handles eye-tracking studies. With this software, a researcher can analyze gaze plots and movements on a screen plus generate in-depth qualitative analyses given certain stimuli (such as an image, a video or a website). The researcher can gather information on how long or how intently the subject stares a particular part of the screen or which part of the screen first grabs his/her attention. The program starts off with the calibration of the subject’s eye gaze to fully capture its movements on the screen. Similar to the previous software, you can export the aggregate data into tables/charts/diagrams or a more detailed dataset.

Facial recognition

FaceReader™ is one of the software offered by the Noldus Information Technology that handles facial expression and recognition analyses. With this software, a researcher can analyze particular behavioral and facial responses of individuals like basic facial expressions, gaze direction, head orientation, etc. to certain stimuli (such as an image, a video or a website). At first, the software records a video of the subject’s face, while he/she is exposed to a particular stimulus. After the experiment, the researcher can have either have an overview of the particular facial expressions the subject expressed or a more detailed account of the changes in expression over time. The data can be exported into summary tables, colorful tables/charts/diagrams or raw dataset for further statistical analyses.

Design of an experiment

The primary purpose of these software programs is to enrich the analysis of behavioral experiments by focusing on other behavioral cues (like eye movement and facial expression) that cannot be captured by the traditional tools like questionnaires or outcomes for a particular task. In designing research or generating the research questions, it would be best to have these particular tools in mind. The researcher can then identify the relevant independent and dependent variables he/she would like to study. From there, he/she can fully design the experiment regarding the treatments and measures he/she could like to gather and encode them on the respective programs. At ESSEC, the Behavioral Research Laboratory assists in the conducting of the experiment, from recruitment of subjects to actual execution of the experiment.

Attention in financial markets: some preliminary results

With the eye-tracking tool, we studied where traders focus their attention when they make their financial decisions on the SimTrade simulation platform.

ESSEC Business School
Heat map from the eye tracking experiment

The heat map obtained with the eye-tracking tool shows where the participant pays attention during a trading simulation. By decreasing order, he/she pays attention to:

  • The evolution of the stock price
  • The ticker tape with the news
  • The gain/loss during the simulation
  • The data of latest transactions
  • The market given by the limit order book

Jose Benedicto Duhaylongsod
PhD candidate at ESSEC Business School

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