We show that the acuity of the Approximate Number System (ANS), a cognitive system that allows humans and many animal species to evaluate quantities without using exact calculations, is a strong predictor of subjects’ earnings in experimental markets. We measure ANS acuity with a bounded number line estimation (NLE) task and find that subjects who perform better on the NLE task, obtain higher earnings in a continuous double auction experimental market. We underline two channels through which high ANS acu- ity subjects achieve better performance: they are rewarded for offering liquidity and are faster at exploiting trading opportunities. We also show that, in a given market, the distribution of NLE scores influences mispricing. Our results are unchanged when we control for differences in trading intensity, risk aversion, background education or demographic characteristics.
Number sense, trading decisions and mispricing: An experiment
10 January 2022