The role of gambling, risk-taking and cognitive bias in computer trading

Computer trading is a new phenomenon that has revolutionized the way individuals can invest in the stock market. This new approach to investing has been fueled by technological advances along with regulatory changes on the federal level. Approximately 25% of all trades on the market are currently executed via the computer, which illustrates the great impact the computer industry has on the stock market. In general, computer traders are investors who execute trades on a computer and consist of two primary groups: online traders and day traders. In addition to having access to technology that allows direct access to the stock market, day traders invest at a much higher frequency than online traders.; The media, addictions specialists, and stock market regulators have suggested that high frequency computer trading is addictive and may be a form of gambling. Due to the lack of empirical data examining problem gambling in the stock market, the current study was conducted to examine the psychological factors underlying frequency of computer trading.; The final sample consisted of 249 participants who were recruited via the Internet. All respondents were volunteers and remained anonymous. This was a nonexperimental research design within the rubric of structural equation modeling. The following model was hypothesized: (a) cognitive bias would have a positive direct effect on risk-taking, tendency to gamble, and level of trading while also having a positive indirect effect on level of trading; (b) risk taking would have a positive direct effect on tendency to gamble and level of trading while having an positive indirect effect on level of trading; (c) tendency to gamble would have a positive direct effect on level of trading; and (d) the applicability of this model would be appropriate for both computer traders and day traders, with the latter being higher on all variables.; The hypothesized model was partially supported with both risk taking and cognitive bias having positive direct effects on tendency to gamble (with 47% of its variance accounted for) and on level of trading (with 66% of its variance accounted for).