Traders, managers and loss aversion in investment banking: a field study

Abstract

The paper examines the management of traders in financial markets from the perspectives of agency and prospect theory. Using interview data from a sample of traders and managers in four investment banks, the paper argues that managers focus on avoiding losses rather than making gains. This focus emerges from the characteristics of managers and the nature of their role. The implications for agency and prospect theory, together with the policy issues for managers, are discussed