The Psychophysiology of Real-Time Financial Risk Processing

A longstanding controversy in economics and finance is whether financial markets are governed by rational forces or by emotional responses. We study the importance of emotion in the decisionmaking process of professional securities traders by measuring their physiological characteristics, e.g., skin conductance, blood volume pulse, etc., during live trading sessions while simultaneously capturing real-time prices from which market events can be defined. In a sample of 10 traders, we find significant correlation between electrodermal responses and transient market events, and between changes in cardiovascular variables and market volatility. We also observe differences in these correlations among the 10 traders which may be systematically related to the traders' levels of experience.

Fear and Greed in Financial Markets: A Clinical Study of Day-Traders

We investigate several possible links between psychological factors and trading performance in a sample of 80 anonymous day-traders. Using daily emotional-state surveys over a five-week period as well as personality inventory surveys, we construct measures of personality traits and emotional states for each subject and correlate these measures with daily normalized profits-and-losses records. We find that subjects whose emotional reaction to monetary gains and losses was more intense on both the positive and negative side exhibited significantly worse trading performance. Psychological traits derived from a standardized personality inventory survey do not reveal any specific "trader personality profile", raising the possibility that trading skills may not necessarily be innate, and that different personality types may be able to perform trading functions equally well after proper instruction and practice.

A Neural Model of How the Brain Represents and Compares Multi-Digit Numbers: Spatial and Categorical Processes

Both animals and humans represent and compare numerical quantities, but only humans have evolved multi-digit place-value number systems. This article develops a Spatial Number Network, or SpaN, model to explain how these shared numerical capabilities are computed using a spatial representation of number quantities in the Where cortical processing stream, notably the inferior parietal cortex. Multi-digit numerical representations that obey a place-value principle are proposed to arise through learned interactions between categorical language representations in the What cortical processing stream and the Where spatial representation. Learned semantic categories that symbolize separate digits, as well as place markers like `ty,' `hundred,' and `thousand,' are associated through learning with the corresponding spatial locations of the Where representation. Such What-to-Where auditory-to-visual learning generates place-value numbers as an emergent property, and may be compared with other examples of multi-modal cross-modality learning, including synesthesia. The model quantitatively simulates error rates in quantification and numerical comparison tasks, and reaction times for number priming and numerical assessment and comparison tasks. In the Where cortical process, transient responses to inputs are integrated before they activate an ordered spatial map that selectively responds to the number of events in a sequence and exhibits Weber law properties. Numerical comparison arises from activity pattern changes across the spatial map that define a `directional comparison wave.' Variants of these model mechanisms have elsewhere been used to explain data about other Where stream phenomena, such as motion perception, spatial attention, and target tracking. The model is compared wi..