Research On Survival Of Traders And Their Decision-Making Process Based On Behavioral Rational Bias

Three matters are focused in modern finance studies. These are rationalities of traders and their decision-making processes and financial market mechanism. This paper focuses on two of those, rationalities of traders and decision-making processes. On the studies of the matters, the paradigm of standard finance is normative under some hypotheses, which is based on expected theory. The central outcomes of the studies are EMH (Efficient Market Hypothesis) and modern portfolio theory and various pricing theories. Comparatively, the paradigm of behavioral finance is descriptive or empirical, which is based on prospect theory. Behavioral biases of rationality and "anomalies" in securities markets are focused in behavioral finance mainly.As an emerging economics branch, experimental economics extends economics study fields of vision and develops new study methods. It is meaningful in the theory and in the realm of the real that studying behavioral rationalities of investors with experimental economics methods in China especially. Behavioral Bayesian rationalities of several groups with different kinds of knowledge structures are studied in an experiment contrastively in chapter 2. Some conclusions are drawn according to the results of the experiment. First, behavioral biases exist universally. Second, one's knowledge structure affects his or her behavioral rationality significantly. According to the results of experiment and statistics, a multiple-factor measurement model for behavioral bias of one's rationalities is designed at the end of the chapter.Distinct cognitive beliefs make fundamental differences between rational traders and irrational traders. Rational traders cognize the events and their probabilities in market by correct beliefs, whereas irrational traders do by wrong ones. Some economists, such as Friedman, believe irrational traders cannot survive in market in long-run. But some others, such as De long etc., do not believe so. The survival relationships between the two kinds of traders are analyzed based on rational traders' and irrational traders' definitions. We find the equilibrium distributions solutions of traders' dividends or traders' consumptions under complete competition condition of the two kinds of traders. There are three survival relationship instances for the traders with different irrational...