Trading

Several weeks ago I ran a survey through Those Answers Inc. which sought to look at the correlation between a person's likelihood of investing in the stock market if they engaged in a market based system in their younger years, trading cards.

The first thing to address when tackling this question is to define what a market is. A market is merely just a conceptualized form in which one good or service is traded for another good or service. There are countless forms of markets in today's modern world. There are more formalized markets like the stock market or the currency market or the futures market. But then, there are also far less formal markets, such as a yard sale or craigslist or even kids trading baseball cards (or any sort of cards) on the school yard.

The purpose of my survey was thus to verify whether informal markets had the propensity to lead to individuals partaking in formal markets. The particular type of informal market that I studied was the last example that I gave, that of young children trading cards with one another, and the formal market that I hoped to correlate these findings with was the stock market.

The underlying theory that gives me reason for this connection to exist is based on socialization. Sociologists use this terminology in order to describe the "process of learning one’s culture and how to live within it" (Source). I think that bartering is a human behavior that individuals must learn in order to survive. Therefore, I gathered that if individuals were exposed to market environments at a younger age in an informal setting, they may be more likely to participate in markets when they are older through socialization and conditioning.

It also may be more natural and intuitive for individuals to participate in formal markets when they have already taken part in informal markets.

That was the first objective of the survey I gave. The second objective was to seek out something far more psychological about the thought processes of individuals partaking in formal markets based on their socialization from informal markets. I sought to find whether or not individuals were likely to hold similar beliefs about the value of items with the influence of time.

• Results

The results are based on the survey results of 34 respondents. 19 of the 34 (56%) of the respondents were male and 15 of the 34 (44%) were female. The average age of a respondent was 22.6 years and ranged between a low of 19 years and a high of 42 years.

The first thing that I wanted to know from my survey participants was whether or not they had ever collected any sort of trading card. 65% of individuals (22 of 34) said that they had collected some sort of trading card.

Then I wanted to see whether the intent of the individual collecting the trading card was similar to the intention of formal market speculators. The way I did this was to ask whether the individual when collecting their trading card anticipated selling that trading card at a later date.

The answer to this question reveals a great deal about human behavior psychologically and culturally. A high percentage of individuals willing to sell their trading cards at a later date indicate that people instinctively collect belongings recognizing that they will part with them at a future date. This seems odd doesn't it? If I know that I am going to have no use for a particular item in the future, what is my motivation to horde that item now? I think intuitively it comes down to exclusivity.

When an item is highly desirable and highly exclusive the value of that item is inflated. This isn't because the item itself has gotten any better, but rather, the psychological drivers of desirability and exclusivity make an individual perceive a particular item to be more than it is worth. It is based on this premise that people will opt to collect items today in hopes that their perceived value will be greater later on (in effect, attempting to horde an item that has "stable" value, money).

Of the surveyed individuals, 63.6% (14 of 22), anticipated selling their trading cards at a later date.

Next, I wanted to figure out what those individuals who anticipated selling their trading cards at a later date thought would happen to the value of their trading card over time. I gave them the option of the value increasing or decreasing over time. A staggering 100% (14 of 14) believed that by adding time to the equation, the value of their item was surely to increase.

This reveals something quite compelling about the natural tendency of individuals partaking in informal markets. It illustrates that perceived value over time increases. If this is instinctive in informal markets, can the same be said about the value over time of objects in formal markets? If the socialization effect appears to hold, this could be a reasonable deduction to make.

Now, I began my inquiry into the interaction with formal markets of our surveyed participants. I asked respondents if they had any capital invested in the United States stock market (our formal market).

Out of all respondents, only 38.2% (13 of 34) had money currently invested in the stock market as of May, 2009. According to 2002 data by the Investment Company Institute, 35.9 million households, which represent 33.7% of the households in the United States owned either stocks or mutual funds or both (Source). Based on the close proximity of these two percentages, I can conclude that we are looking at a pretty representative sample of the United States stock ownership community.

This is where I can finally get at what I was really after. At this point, I can determine if there is a significantly higher percentage of individuals who traded cards when they were younger (in informal markets) who participate in the stock market (our formal market).

In order to perform my statistical tests, I used a one-proportion z-test for the four particular conditions that I had. The first condition was yes informal - yes formal (YIYF), the second was no informal - no formal (NINF), the third was yes informal - no formal (YINF), and the fourth was no informal - yes formal (NIYF).

• YIYF

After conducting the one-proportion z-test for this condition, a z-value of 0.55 was achieved which has a p-value of 0.2088. This is not considered a statistically significant value, and thus one cannot conclude that if an individual was involved in informal markets then that would predict for their involvement in formal markets. (A larger sample is needed to truly verify this result).

• NINF

A z-value of 3.4 was achieved which has a p-value of 0.0003. This is considered a highly statistically significant value, and thus one can conclude that if an individual was not involved in informal markets then that would predict for their non-involvement in formal markets. (A larger sample is needed to truly verify this result).

• YINF

A z-value of 2.27 was achieved which has a p-value of 0.0119. This is considered a highly statistically significant value, and thus one can conclude that if an individual was involved in informal markets then that would predict for their non-involvement in formal markets. (A larger sample is needed to truly verify this result).

• NIYF

A z-value of -0.59 was achieved which has a p-value of 0.7224. This is not considered a statistically significant value, and thus one cannot conclude that if an individual was not involved in informal markets then that would predict for their involvement in formal markets. (A larger sample is needed to truly verify this result).

These findings truly get at the crux of the survey. It appears as though there is no correlation between involvement in informal markets and formal markets.

The survey also sought to verify whether the beliefs held about perceived values were still consistent between informal and formal markets. Recall that in informal markets individuals believed, with a 100% success rate, that the value of their good would increase over time. When it came to formal markets, it appears as though beliefs mirror that of the informal market. 92.8% (13 of 14) respondents believed that the value of an investment is likely to increase rather than decrease over time.

This seems to be highly correlated. Beliefs seem to remain embedded regardless of the market type, and that belief is that value increases over time.

With the belief structure that value tends to increase over time it was not that surprising to find that only 59% (20 of 34) of respondents knew the difference between a long position in the stock market and a short position. Long positions are based on the belief that investments will increase, whereas, short positions take the stance that investments will decrease. A short position is probably counter-intuitive to a lot of people's thinking based on the results of this survey.

Thanks to all participants!