Recently, the video game retailer GameStop and other struggling companies were part of an unprecedented movement in financial history in which armchair traders wildly disrupted the stock market. The traders’ meddling was possible thanks to online forums like those on Reddit and trading platforms such as Robinhood that let people buy and sell stocks for free. The forums and platforms allowed the amateur traders to band together and put a “squeeze” on hedge fund companies that try to profit off floundering companies like GameStop.
At the heart of the shenanigans is a concept known as shorting a stock, in which bets are placed against stocks that are predicted to go down in value. In an interview, Caltech’s Colin Camerer, the Robert Kirby Professor of Behavioral Economics and director of the T&C Chen Center for Social and Decision Neuroscience in the Tianqiao and Chrissy Chen Institute for Neuroscience, helps us better understand what shorting a stock means, and he shares his thoughts on the future of this kind of armchair trading.