NEUROFINANCE: GETTING AN INSIGHT INTO THE TRADER'S MIND

Much of the academic finance theory is based on the assumption that individuals act rationally and behavioral finances treats investorsâ€(tm) choice based by behavioral biases. In contrast, neuro-finance (as a blending of psychology, neurology and finance) attempts to understand behavior by examining the physiological processes in the human brain when exposed to financial risk. Scientists map the mind to learn how fear and greed drive the financial markets. The paper, will briefly present why neurofinance is important and how will be able to provide in the near future a number of effective tools for improved financial decision making.Emotions, Behavioral Finance, Neurofinance, Brain, Risk taking, Affect, Beliefs, Dopamine, fMRI

ECONOMIC AGENCY THROUGH MODULARITY THEORY

Economic agency as a matter of rational decision-making and as a problem of bounded rationality has never gone too far from its earlier formalization in the 1950s. Not that the advancement on this topic is so slow, but the same problem concerning higher level cognition as another general program of cognitive science is not as easy as behavioral studies. This paper will show a parallelism between economic agency and folkpsychological perspective, and in turn will give a short description on how folk psychology is unseparable from modularity theory. In short, then there must be a way to cope with cognition as the black box of economics if we can identify the appropriate level of description of cognitive structure, i.e.: modularity theory.bounded rationality, folk psychology, modularity theory

Neuroeconomics: How Neuroscience Can Inform Economics

Neuroeconomics uses knowledge about brain mechanisms to inform economic analysis, and roots economics in biology. It opens up the "black box" of the brain, much as organizational economics adds detail to the theory of the firm. Neuroscientists use many tools— including brain imaging, behavior of patients with localized brain lesions, animal behavior, and recording single neuron activity. The key insight for economics is that the brain is composed of multiple systems which interact. Controlled systems ("executive function") interrupt automatic ones. Emotions and cognition both guide decisions. Just as prices and allocations emerge from the interaction of two processes—supply and demand— individual decisions can be modeled as the result of two (or more) processes interacting. Indeed, "dual-process" models of this sort are better rooted in neuroscientific fact, and more empirically accurate, than single-process models (such as utility-maximization). We discuss how brain evidence complicates standard assumptions about basic preference, to include homeostasis and other kinds of state-dependence. We also discuss applications to intertemporal choice, risk and decision making, and game theory. Intertemporal choice appears to be domain-specific and heavily influenced by emotion. The simplified ß-d of quasi-hyperbolic discounting is supported by activation in distinct regions of limbic and cortical systems. In risky decision, imaging data tentatively support the idea that gains and losses are coded separately, and that ambiguity is distinct from risk, because it activates fear and discomfort regions. (Ironically, lesion patients who do not receive fear signals in prefrontal cortex are "rationally" neutral toward ambiguity.) Game theory studies show the effect of brain regions implicated in "theory of mind", correlates of strategic skill, and effects of hormones and other biological variables. Finally, economics can contribute to neuroscience because simple rational-choice models are useful for understanding highly-evolved behavior like motor actions that earn rewards, and Bayesian integration of sensorimotor information

The role of information format in financial decision-making : bridging psychology, neuroscience and accounting research

Mestrado em Ciências EmpresariaisA ideia de que a avaliação e as decisões financeiras dependem não só do valor real das empresas espelhada na informação contida nos relatos financeiros, mas também da forma como a mesma é apresentada tem vindo a ser empiricamente demonstrada. Contudo, sabemos ainda muito pouco sobre os mecanismos subjacentes ao impacto que o formato tem nos processos de tomada de decisão. Para compreender melhor o impacto da forma como a informação é apresentada e disponibilizada e para conseguir criar relatos financeiros mais eficientes ao nível da transmissão da informação desejada, é fundamental perceber os fatores que influenciam a aquisição, o processamento e utilização da informação financeira e contabilística. O conhecimento dos processos psicológicos e neurais que culminam na tomada de decisões e dos fatores que os influenciam requer a integração de abordagens e ferramentas de várias disciplinas e áreas do conhecimento, designadamente da economia, da psicologia, das ciências computacionais e da neurociência. O objetivo deste trabalho é rever e discutir a investigação mais recente nestes diferentes campos, em particular a relacionada com a importância da forma de apresentação da informação. Pretende-se ainda discutir a abordagem multidisciplinar que começa a emergir sob a designação de "neuroacounting", reconhecendo o seu potencial, mas também as suas limitações.The idea that not only what but also how financial accounting information is disclosed may impact financial evaluation and trading decisions has gained growing empirical support. Yet, despite its profound implications for accounting researchers and information users as well as policy regulators, we know little about the variables mediating these effects. Crucial for both understanding these effects and efficiently designing financial reports is to understand the factors that influence the sampling, processing and use of financial information. Only then we will be able to shape policy and tailor organizational processes to promote efficient use of financial information. A rich and biologically rooted understanding of how people make decisions and the factors that shape it will require integration of insights and tools from multiple disciplines including economics, psychology, computer science and neuroscience. The aim of this paper is to review and bridge research from these different fields to address the importance of presentation variables in financial decision-making. More generally, the paper reviews and discusses the emerging field of ‘neuroaccounting’ and the potential as well as the challenges of this multidisciplinary approach to tackle behavioural accounting questions

Decoding the consumer’s brain: Neural representations of consumer experience

Understanding consumer experience – what consumers think about brands, how they feel about services, whether they like certain products – is crucial to marketing practitioners. ‘Neuromarketing’, as the application of neuroscience in marketing research is called, has generated excitement with the promise of understanding consumers’ minds by probing their brains directly. Recent advances in neuroimaging analysis leverage machine learning and pattern classification techniques to uncover patterns from neuroimaging data that can be associated with thoughts and feelings. In this dissertation, I measure brain responses of consumers by functional magnetic resonance imaging (fMRI) in order to ‘decode’ their mind. In three different studies, I have demonstrated how different aspects of consumer experience can be studied with fMRI recordings. First, I study how consumers think about brand image by comparing their brain responses during passive viewing of visual templates (photos depicting various social scenarios) to those during active visualizing of a brand’s image. Second, I use brain responses during viewing of affective pictures to decode emotional responses during watching of movie-trailers. Lastly, I examine whether marketing videos that evoke s

Multistable Perception, False Consensus, and Information Complements

This paper presents a distributed communication model to investigate multistable perception, where a stimulus gives rise to multiple competing perceptual interpretations. We formalize stable perception as consensus achieved through components exchanging information. Our key finding is that relationships between components influence monostable versus multistable perceptions. When components contain substitute information about the prediction target, stimuli display monostability. With complementary information, multistability arises. We then analyze phenomena like order effects and switching costs. Finally, we provide two additional perspectives. An optimization perspective balances accuracy and communication costs, relating stability to local optima. A Prediction market perspective highlights the strategic behaviors of neural coordination and provides insights into phenomena like rivalry, inhibition, and mental disorders. The two perspectives demonstrate how relationships among components influence perception costs, and impact competition and coordination behaviors in neural dynamics

Store Format Choice in an Evolving Market . A TPB Approach

<div align=justify>The store choice has been studied extensively in the literature, but store format choice has had limited research attention. The store choice modeling has been primarily done in the random utility theory framework, which however is a neo-economics based view of choice decision that ignores the psychological and behavioral aspects of this planned behavior. The store format choice for bulk grocery purchase despite being a rational context has not been conceptualized in the most accepted construct in attitude behavior, the Theory of Planned Behavior (TPB). Attitude-behavior linkage has been studied extensively in literature but there is still no consensus on the components of attitude, their interrelationship and resultant impact on conation. The Theory of Reasoned Action has evolved over time to incorporate perceived behavioral control and past behavior to improve its explanatory capacity as TPB; however, it has maintained its unidimensionalist approach and has not tested affect and cognition independently for its impact on behavior. It may therefore be relevant to explore the possibility of testing the proposed Converging framework of Affect and Cognition and comment on the relationship of the structural components of attitude and its impact on format choice. The impact of past behavior on future behavior in Theory of Planned Behavior has been ambiguous while there has not been much emphasis on the quality of past experience. The current research takes up the past experience quality and tests it in the attitude behavior relationship as an antecedent of actual behavior. This paper conceptualizes the store format choice behavior in the Theory of Planned Behavior framework by exploring the strength of attitude-behavior relationship mediated through behavioral intention and its impact on format choice as also the independent role of affect and cognition on the format choice.</div>