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Abstract
The objective of this study is to investigate how professional traders in futures and options
markets behave under risk and uncertainty. Our preliminary findings suggest that most traders
exhibit concave utility functions for gains and convex utility functions for losses, while their
weighting functions are inverse s-shaped. However, differences in magnitude of the risk aversion
parameters and the degree of probability weighting can lead to distinct behavior even if the
shapes of utility and weighting functions are the same. Further, the typical pattern of prospect
theory is more prevalent under risk but not as much under uncertainty. More combinations of
shapes for utility and weighting functions are found under uncertainty, suggesting that different
types of behavior emerge when people need to make their own assessments about the likelihood
of events. Finally, our results are consistent with evidence of loss aversion and disposition effect
found in studies of trading behavior in futures markets.