Forum for Science, Industry and Business

Sponsored by:     3M 
Search our Site:

 

Where bonehead investments come from

01.09.2005


The ups and downs of the stock market reflect investors’ balance between greed and fear, goes an old saying. Until now, though, economists have not had a way to incorporate such emotions into their models of investors’ strategies. However, in the September 1, 2005, issue of Neuron, Camelia M. Kuhnen and Brian Knutson of Stanford University report the identification of two key brain regions activated before people make risk-seeking versus risk-aversion investment mistakes.
They said that their findings may help to "ultimately improve the design of economic institutions so as to facilitate optimal investor behavior." They also said they believe their experimental design--which they call the "Behavioral Investment Allocation Strategy"--enables researchers to bring the real-life equivalent of individual investment behavior into the laboratory.

In their experiments, the researchers asked volunteers to make investment decisions among two stocks and a bond by pressing buttons. Before each trial run, the researchers "showed them the money," telling the subjects that they would receive a percentage of the cash that they made by investing or would lose cash from their participation fee if they were not successful. Without telling the subjects, the researchers randomly designated one of the stocks a "bad" stock more likely to lose money or as a "good" stock that was more likely to make money. The bond was a safe but conservative investment.


The researchers then scanned the subjects’ brains using functional magnetic resonance imaging (fMRI) as they proceeded through a series of decisions on investing in the pairs of the stocks or with the bond and learned the outcomes of those decisions. The commonly used technique of fMRI utilizes harmless magnetic fields and radio signals to map detailed blood flow in brain regions, which reflects activity.

The researchers’ analyses of the subjects’ choices and brain activity revealed that an area called the nucleus accumbens (NAcc) tended to distinctively activate before the researchers made investing mistakes that were "risk seeking." That is, they decided to invest in a stock whose history had shown it to be "bad."

Conversely, found the researchers, the brain area called the anterior insula activated before the subjects made "risk-averse" mistakes--for example, investing in the bond when they had an opportunity to invest in a "good" stock.

The researchers wrote that their results "indicate that, above and beyond contributing to rational choice, anticipatory neural activation may also promote irrational choice. Thus, financial decision making may require a delicate balance--recruitment of distinct circuits may be necessary for taking or avoiding risks, but excessive activation of one mechanism or the other may lead to mistakes."

Kuhnen and Knutson concluded that "Overall, these findings suggest that risk-seeking choices (such as gambling at a casino) and risk-averse choices (such as buying insurance) may be driven by two distinct neural circuits involving the NAcc and the anterior insula. The findings are consistent with the notion that activation in the NAcc and anterior insula, respectively, index positive and negative anticipatory affective states and that activating one of these two regions can lead to a shift in risk preferences. This may explain why casinos surround their guests with reward cues (e.g., inexpensive food, free liquor, surprise gifts, potential jackpot prizes)--anticipation of rewards activates the NAcc, which may lead to an increase in the likelihood of individuals switching from risk-averse to risk-seeking behavior. A similar story in reverse may apply to the marketing strategies employed by insurance companies," they wrote.

Heidi Hardman | EurekAlert!
Further information:
http://www.cell.com

More articles from Life Sciences:

nachricht Antimicrobial substances identified in Komodo dragon blood
23.02.2017 | American Chemical Society

nachricht New Mechanisms of Gene Inactivation may prevent Aging and Cancer
23.02.2017 | Leibniz-Institut für Alternsforschung - Fritz-Lipmann-Institut e.V. (FLI)

All articles from Life Sciences >>>

The most recent press releases about innovation >>>

Die letzten 5 Focus-News des innovations-reports im Überblick:

Im Focus: Breakthrough with a chain of gold atoms

In the field of nanoscience, an international team of physicists with participants from Konstanz has achieved a breakthrough in understanding heat transport

In the field of nanoscience, an international team of physicists with participants from Konstanz has achieved a breakthrough in understanding heat transport

Im Focus: DNA repair: a new letter in the cell alphabet

Results reveal how discoveries may be hidden in scientific “blind spots”

Cells need to repair damaged DNA in our genes to prevent the development of cancer and other diseases. Our cells therefore activate and send “repair-proteins”...

Im Focus: Dresdner scientists print tomorrow’s world

The Fraunhofer IWS Dresden and Technische Universität Dresden inaugurated their jointly operated Center for Additive Manufacturing Dresden (AMCD) with a festive ceremony on February 7, 2017. Scientists from various disciplines perform research on materials, additive manufacturing processes and innovative technologies, which build up components in a layer by layer process. This technology opens up new horizons for component design and combinations of functions. For example during fabrication, electrical conductors and sensors are already able to be additively manufactured into components. They provide information about stress conditions of a product during operation.

The 3D-printing technology, or additive manufacturing as it is often called, has long made the step out of scientific research laboratories into industrial...

Im Focus: Mimicking nature's cellular architectures via 3-D printing

Research offers new level of control over the structure of 3-D printed materials

Nature does amazing things with limited design materials. Grass, for example, can support its own weight, resist strong wind loads, and recover after being...

Im Focus: Three Magnetic States for Each Hole

Nanometer-scale magnetic perforated grids could create new possibilities for computing. Together with international colleagues, scientists from the Helmholtz Zentrum Dresden-Rossendorf (HZDR) have shown how a cobalt grid can be reliably programmed at room temperature. In addition they discovered that for every hole ("antidot") three magnetic states can be configured. The results have been published in the journal "Scientific Reports".

Physicist Dr. Rantej Bali from the HZDR, together with scientists from Singapore and Australia, designed a special grid structure in a thin layer of cobalt in...

All Focus news of the innovation-report >>>

Anzeige

Anzeige

Event News

Booth and panel discussion – The Lindau Nobel Laureate Meetings at the AAAS 2017 Annual Meeting

13.02.2017 | Event News

Complex Loading versus Hidden Reserves

10.02.2017 | Event News

International Conference on Crystal Growth in Freiburg

09.02.2017 | Event News

 
Latest News

From rocks in Colorado, evidence of a 'chaotic solar system'

23.02.2017 | Physics and Astronomy

'Quartz' crystals at the Earth's core power its magnetic field

23.02.2017 | Earth Sciences

Antimicrobial substances identified in Komodo dragon blood

23.02.2017 | Life Sciences

VideoLinks
B2B-VideoLinks
More VideoLinks >>>