Brain to bank [electronic resource] : an affective neuroscience account of financial risk taking

Financial decisions shape our well-being across our lifetimes. From establishing financial independence to enjoying retirement, financial security allows individuals freedom to live the life they want. Most individuals attain financial security by saving and investing over a long period of time. However, all investments entail some degree of risk. For financial goals with long time horizons, it may be advantageous to invest in riskier assets, such as stocks or mutual funds. Despite this fundamental financial advice, some individuals are wary of investing in higher risk assets. Across the U.S. and the world, the 2008 Global Financial Crisis adversely affected the financial health of many individuals, whether it was due to downturns in stock markets, notices of evictions and foreclosures, or prolonged unemployment. In contrast, other individuals may be committing other types of suboptimal financial decisions. Since the Great Recession, the number of fraud cases is on the rise. Whereas some individuals are not taking enough financial risk, other individuals are taking too much financial risk. Thus, it is increasingly imperative to better understand the mechanisms the drive financial risk taking so that all individuals can improve their financial futures. To explain financial risk taking, decision theorists have either appealed to the objective statistical properties of financial options or to the subjective emotional experience of individuals. From a neuroscience perspective, choice emanates from a dynamic multi-componential process. Recent technological advances in neuroimaging have made it possible for researchers to separately visualize perceptual input, intermediate processing, and motor output. An affective neuroscience account of financial risk taking thus might illuminate affective mediators that bridge the gap between statistical input and choice output. The seven experiments presented here investigated financial risk taking from identifying affective-driven preferences (Experiments 1-2) to predicting risky choice using affect and neural probes (Experiments 3-5) to examining how risk preferences manifest in real world financial practice (Experiment 6). The first set of experiments identified a "positive skew premium" or an asymmetry in risk preferences, such that individuals tend to prefer positively skewed options to negatively skewed options of equal return, as well as correlated activity in neural regions implicated in affect. Given that all financial options were objectively equivalent, subjective affective experience indexed by neural activity in the nucleus accumbens (NAcc) and anterior insula may drive these preferences. The second set of experiments focused on establishing affect (and corresponding neural activity) as primary predictors of risky choice. A meta-analysis of studies examining financial risk taking confirmed that the NAcc and anterior insula were commonly activated during risk taking processes. A subsequent neuroimaging study designed to predict financial risk taking on a trial-by-trial basis provided additional evidence of a "risk matrix, " such that increased NAcc activity and decreased anterior insula activity promoted risky choices. Furthermore, activity in the risk matrix has been associated with specific affective experiences -- NAcc activity is associated with feelings of positive arousal or excitement, while anterior insula activity is associated with feelings of negative arousal or anxiety. Critically, inducing incidental affective experiences in individuals resulted in shifts in risky choice behavior and changes in corresponding neural activity. Specifically, increased positive arousal and NAcc activity promoted financial risk taking. The final set of experiments focused on how these measures might translate to behavior outside the lab. By examining the risk profiles of financial fraud victims, the next experiment investigated on how risk preferences may manifest in real world financial practice (Experiment 6). Compared to matched individuals who had never been defrauded, fraud victims took more indiscriminate risks. Across the experiments, these findings indicate that affective and neural mechanisms may be able to predict financial risk taking in the laboratory and in the real world beyond traditional approaches. Together, this dissertation suggests that applying an affective neuroscience approach to financial risk taking may eventually inform the design of targeted interventions and improve financial health for all investors.

Keywords: Psychology.
Advisor: Knutson Brian primary advisor. Thesis advisor
Gross James J.
McClure Samuel M. advisor. Thesis advisor