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

The Neural Basis of Financial Risk Taking

Investors systematically deviate from rationality when making financial decisions, yet the mechanisms responsible for these deviations have not been identified. Using event-related fMRI, we examined whether anticipatory neural activity would predict optimal and suboptimal choices in a financial decision-making task. We characterized two types of deviations from the optimal investment strategy of a rational risk- neutral agent as risk-seeking mistakes and risk-aversion mistakes. Nucleus accumbens activation preceded risky choices as well as risk- seeking mistakes, while anterior insula activation preceded riskless choices as well as risk-aversion mistakes. These findings suggest that distinct neural circuits linked to anticipatory affect promote different types of financial choices, and indicate that excessive activation of these circuits may lead to investing mistakes. Thus, consideration of anticipatory neural mechanisms may add predictive power to the rational actor model of economic decision-making.neuroeconomics, neurofinance, brain, investing, emotions, affect

Nucleus accumbens activation mediates the influence of reward cues on financial risk-taking

In functional magnetic resonance imaging (FMRI) research, nucleus accumbens (NAcc) activation spontaneously increases prior to financial risk taking. Since anticipation of diverse rewards can increase NAcc activation, even incidental reward cues may influence financial risk-taking. Using event-related FMRI, we predicted and found that anticipation of viewing rewarding stimuli (erotic pictures for 15 heterosexual males) increased financial risk taking, and that this effect was partially mediated by increases in NAcc activation. These results are consistent with the notion that incidental reward cues influence financial risk taking by altering anticipatory affect, and so identify a neuropsychological mechanism that may underlie effective emotional appeals in financial, marketing, and political domains.neuroeconomics, neurofinance, brain, financial risk taking, risk preferences, decision making, nucleus accumbens, striatum, reward cues, FMRI, brain imaging

Neural affective mechanisms predict market-level microlending

Humans sometimes share with others whom they may never meet or know, in violation of the dictates of pure self-interest. Research has not established which neuropsychological mechanisms support lending decisions, nor whether their influence extends to markets involving significant financial incentives. In two studies, we found that neural affective mechanisms influence the success of requests for microloans. In a large Internet database of microloan requests (N = 13,500), we found that positive affective features of photographs promoted the success of those requests. We then established that neural activity (i.e., in the nucleus accumbens) and self-reported positive arousal in a neuroimaging sample (N = 28) predicted the success of loan requests on the Internet, above and beyond the effects of the neuroimaging sample’s own choices (i.e., to lend or not). These findings suggest that elicitation of positive arousal can promote the success of loan requests, both in the laboratory and on the Internet. They also highlight affective neuroscience’s potential to probe neuropsychological mechanisms that drive microlending, enhance the effectiveness of loan requests, and forecast market-level behavior

Neuroforecasting Aggregate Choice

Advances in brain-imaging design and analysis have allowed investigators to use neural activity to predict individual choice, while emerging Internet markets have opened up new opportunities for forecasting aggregate choice. Here, we review emerging research that bridges these levels of analysis by attempting to use group neural activity to forecast aggregate choice. A survey of initial findings suggests that components of group neural activity might forecast aggregate choice, in some cases even beyond traditional behavioral measures. In addition to demonstrating the plausibility of neuroforecasting, these findings raise the possibility that not all neural processes that predict individual choice forecast aggregate choice to the same degree. We propose that although integrative choice components may confer more consistency within individuals, affective choice components may generalize more broadly across individuals to forecast aggregate choice

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

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

Infrared Eclipses of the Strongly Irradiated Planet WASP-33b, and Oscillations of its Host Star

We observe two secondary eclipses of the strongly irradiated transiting planet WASP-33b in the Ks band, and one secondary eclipse each at 3.6- and 4.5 microns using Warm Spitzer. This planet orbits an A5V delta-Scuti star that is known to exhibit low amplitude non-radial p-mode oscillations at about 0.1-percent semi-amplitude. We detect stellar oscillations in all of our infrared eclipse data, and also in one night of observations at J-band out of eclipse. The oscillation amplitude, in all infrared bands except Ks, is about the same as in the optical. However, the stellar oscillations in Ks band have about twice the amplitude as seen in the optical, possibly because the Brackett-gamma line falls in this bandpass. We use our best-fit values for the eclipse depth, as well as the 0.9 micron eclipse observed by Smith et al., to explore possible states of the exoplanetary atmosphere, based on the method of Madhusudhan and Seager. On this basis we find two possible states for the atmospheric structure of WASP-33b. One possibility is a non-inverted temperature structure in spite of the strong irradiance, but this model requires an enhanced carbon abundance (C/O>1). The alternative model has solar composition, but an inverted temperature structure. Spectroscopy of the planet at secondary eclipse, using a spectral resolution that can resolve the water vapor band structure, should be able to break the degeneracy between these very different possible states of the exoplanetary atmosphere. However, both of those model atmospheres absorb nearly all of the stellar irradiance with minimal longitudinal re-distribution of energy, strengthening the hypothesis of Cowan et al. that the most strongly irradiated planets circulate energy poorly. Our measurement of the central phase of the eclipse yields e*cos(omega)=0.0003 +/-0.00013, which we regard as being consistent with a circular orbit.Comment: 23 pages, 9 figures, 3 tables, accepted for the Astrophysical Journa