Victor Haghani, James White, and Jerry Bell conducted an experiment called “The Crystal Ball Challenge,” where 118 young adults in finance were given $50 to trade in the S&P 500 and US Treasury bonds with information from the Wall Street Journal a day in advance. Surprisingly, despite having the news early, the players fared poorly with only a 3.2% gain on average. Factors contributing to the poor results include inaccurate stock and bond predictions, poor trade-sizing, and excessive leverage. Experienced macro traders, on the other hand, did much better, showcasing the importance of rational trade-sizing in investment decisions. The experiment highlights the need for education on decision-making under uncertainty in the finance industry.
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