The Influence of Affect on Beliefs, Preferences and Financial Decisions

Recent research in neuroeconomics suggests that the same brain areas that generate emotional states are also involved in the processing of information about risk, rewards and punishments. These findings imply that emotions may influence financial decisions in a predictable and parsimonious way. Our evidence suggests that affect -- generated either by exogenous manipulations, or endogenously by outcomes of prior actions -- indeed matters for financial risk taking, and that it does so by changing preferences as well as the belief formation process. Positive and arousing emotional states such as excitement induce people to take more risk, and to be more confident in their ability to evaluate the available investment options, relative to neutral states, while negative emotions such as anxiety have the opposite effects. Moreover, beliefs are updated in a way that is consistent with the self-preservation motive of maintaining positive affect and avoiding negative affect, by not fully taking into account new information that is at odds with the individuals' prior choices. Therefore, characteristics of markets, economic policies or organization design that have an impact on emotional brain circuits may influence decision making and affect important outcomes at the individual and aggregate level.affect, emotions, beliefs, risk taking, learning, limbic system, neuroeconomics, neurofinance

A role for endogenous brain states in organizational research:moving toward a dynamic view of cognitive processes

The dominant view in neuroscience, including functional neuroimaging, is that the brain is an essentially reactive system, in which some sensory input causes some neural activity, which in turn results in some important response such as a motor activity or some hypothesized higher-level cognitive or affective process. This view has driven the rise of neuroscience methods in management and organizational research. However, the reactive view offers at best a partial understanding of how living organisms function in the real world. In fact, like any neural system, the human brain exhibits a constant ongoing activity. This intrinsic brain activity is produced internally, not in response to some environmental stimulus, and is thus termed endogenous brain activity (EBA). In the present article we introduce EBA to organizational research conceptually, explain its measurement, and go on to show that including EBA in management and organizational theory and empirical research has the potential to revolutionize how we think about human choice and behavior in organizations

Behavioral Economics: Past, Present, Future

Behavioral economics increases the explanatory power of economics by providing it with more realistic psychological foundations. This book consists of representative recent articles in behavioral economics. This chapter is intended to provide an introduction to the approach and methods of behavioral economics, and to some of its major findings, applications, and promising new directions. It also seeks to fill some unavoidable gaps in the chapters’ coverage of topics

Measuring time preferences

We review research that measures time preferences—i.e., preferences over intertemporal tradeoffs. We distinguish between studies using financial flows, which we call “money earlier or later” (MEL) decisions and studies that use time-dated consumption/effort. Under different structural models, we show how to translate what MEL experiments directly measure (required rates of return for financial flows) into a discount function over utils. We summarize empirical regularities found in MEL studies and the predictive power of those studies. We explain why MEL choices are driven in part by some factors that are distinct from underlying time preferences.National Institutes of Health (NIA R01AG021650 and P01AG005842) and the Pershing Square Fund for Research in the Foundations of Human Behavior

Prospect relativity: How choice options influence decision under risk

In many theories of decision under risk (e.g., expected utility theory, rank-dependent utility theory, and prospect theory), the utility of a prospect is independent of other options in the choice set. The experiments presented here show a large effect of the available options, suggesting instead that prospects are valued relative to one another. The judged certainty equivalent for a prospect is strongly influenced by the options available. Similarly, the selection of a preferred prospect is strongly influenced by the prospects available, Alternative theories of decision under risk (e.g., the stochastic difference model, multialternative decision field theory, and range frequency theory), where prospects are valued relative to one another, can provide an account of these context effects

Orbitofrontal cortex, emotional decision-making and response to cognitive behavioural therapy for psychosis

Grey matter volume (GMV) in the orbitofrontal cortex (OFC) may relate to better response to cognitive behavioural therapy for psychosis (CBTp) because of the region's role in emotional decision-making and cognitive flexibility. This study aimed to determine the relation between pre-therapy OFC GMV or asymmetry and CBTp responsiveness and emotional decision-making as measured by the Iowa Gambling Task (IGT). Thirty patients received CBTp + standard care (CBTp+SC; 25 completers) for 6-8 months. All patients (before receiving CBTp) and 25 healthy participants underwent structural magnetic resonance imaging and performed the IGT. Patients' symptoms were assessed before and after therapy. Pre-therapy OFC GMV, measured using a region-of-interest approach, and IGT performance, measured as overall learning, attention to reward, memory for past outcomes and choice consistency, were comparable between patient and healthy groups. In the CBTp+SC group, greater OFC GMV was correlated with positive symptom improvement, specifically hallucinations and persecution. Greater rightward OFC asymmetry correlated with improvement in several negative and general psychopathology symptoms. Greater left OFC GMV was associated with lower IGT attention to reward. The findings suggest that greater OFC volume and rightward asymmetry, which maintain the OFC's function in emotional decision-making and cognitive flexibility, are beneficial for CBTp responsiveness

What the brain 'Likes': neural correlates of providing feedback on social media.

Evidence increasingly suggests that neural structures that respond to primary and secondary rewards are also implicated in the processing of social rewards. The 'Like'-a popular feature on social media-shares features with both monetary and social rewards as a means of feedback that shapes reinforcement learning. Despite the ubiquity of the Like, little is known about the neural correlates of providing this feedback to others. In this study, we mapped the neural correlates of providing Likes to others on social media. Fifty-eight adolescents and young adults completed a task in the MRI scanner designed to mimic the social photo-sharing app Instagram. We examined neural responses when participants provided positive feedback to others. The experience of providing Likes to others on social media related to activation in brain circuity implicated in reward, including the striatum and ventral tegmental area, regions also implicated in the experience of receiving Likes from others. Providing Likes was also associated with activation in brain regions involved in salience processing and executive function. We discuss the implications of these findings for our understanding of the neural processing of social rewards, as well as the neural processes underlying social media use

Under pressure: Response urgency modulates striatal and insula activity during decision-making under risk

When deciding whether to bet in situations that involve potential monetary loss or gain (mixed gambles), a subjective sense of pressure can influence the evaluation of the expected utility associated with each choice option. Here, we explored how gambling decisions, their psychophysiological and neural counterparts are modulated by an induced sense of urgency to respond. Urgency influenced decision times and evoked heart rate responses, interacting with the expected value of each gamble. Using functional MRI, we observed that this interaction was associated with changes in the activity of the striatum, a critical region for both reward and choice selection, and within the insula, a region implicated as the substrate of affective feelings arising from interoceptive signals which influence motivational behavior. Our findings bridge current psychophysiological and neurobiological models of value representation and action-programming, identifying the striatum and insular cortex as the key substrates of decision-making under risk and urgency