The evolution of stock markets into highly accessible, low-cost, virtually frictionless venues has been praised by policymakers and institutional investors. But could frictionless markets actually harm individual investors by increasing impulsive trading driven by heuristics and biases? Using laboratory experiments, we examine how investor performance is impacted by various trading frictions: transaction costs, time delays in placing orders, and tasks requiring cognitive effort. High transaction costs and time delays have no effect or harm performance, while cognitive tasks benefit participants that are most prone to underperforming. Frictions can yield benefits when they help inattentive investors consider information they might otherwise neglect. 

Keywords: behavioral finance, trading frictions, individual investors, cognitive effort, investor attention, experimental asset markets

JEL classification: G11, G41​