Researchers from the University of Warwick’s Institute of Applied Cognitive Science have devised a new method of obtaining a precise understanding of a consumer’s tolerance of risk. The research can be used to help match consumers with financial options that are closely keyed to the exact level of risk that investor feels comfortable with. This approach runs counter to the current culture which tends to provide conservative solutions to people’s financial services needs. If used widely, the resultant increased level of confidence and risk taking in how people make financial decisions could create a discernible and sustained boost in confidence in a number of financial markets.
This work arises from University of Warwick researchers Professor Nick Chater and Dr Neil Stewart’s development of a new theory of how people make risky decisions. They are now working with fellow Warwick researcher Henry Stott to develop the core idea of this development - that people cannot weigh up the absolute value of various outcomes, and don’t have any absolute idea how likely each outcome is. They tend, instead, to ‘sample’ outcomes and likelihoods from memory, and use these to assess the relative value of the options they are considering. This leads to new explanations for why people are risk-averse, and why they so dislike investment volatility.
The researchers will also develop models of “financial personalities” which will be independent of socio-economic classifications and which give a much better understanding of how people’s decision-making processes work. The researchers will also explore how consumers are influenced by the contexts in which they take financial decisions. This will help people to improve their financial decisions and banks to improve their services.
Peter Dunn | alfa
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Our brains house extremely complex neuronal circuits, whose detailed structures are still largely unknown. This is especially true for the so-called cerebral cortex of mammals, where among other things vision, thoughts or spatial orientation are being computed. Here the rules by which nerve cells are connected to each other are only partly understood. A team of scientists around Moritz Helmstaedter at the Frankfiurt Max Planck Institute for Brain Research and Helene Schmidt (Humboldt University in Berlin) have now discovered a surprisingly precise nerve cell connectivity pattern in the part of the cerebral cortex that is responsible for orienting the individual animal or human in space.
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