Learning by aspiring professional traders: Learning to take risk

This paper investigates evidence of learning among thousands of new entrants to a population of professional futures floor traders over a six-year period. We document several empirical regularities consistent with different types of learning. First, traders appear to rationally learn about ability: only about 15% of the traders survive more than one year. Second, as traders become experienced, they increase trading intensity. Third, on average, surviving traders exhibit increasing comfort with risk (tolerating larger potential losses) as they gain experience compared to traders with the same experience level who do not survive. However, despite evidence consistent with learning about ability, we find no evidence that traders improve their risk-adjusted performance as they gain experience. Other than learning about ability, we conclude that the fundamental skill traders learn is the ability to be comfortable with risk.