The role of the brain in financial decisions: A viewpoint on neuroeconomics

Authors

  • Guillermo Mateu Burgundy School of Business (France).
  • Lucas Monzani Richard Ivey Business School (Western Ontario University, Canada).
  • Roger Muñoz Navarro Department de Personality, Assessment & Psychological Treatments of the Faculty of Psychology, University of Valencia (Spain).

DOI:

https://doi.org/10.7203/metode.0.6923

Keywords:

financial markets, decision-making, neuroeconomics, brain

Abstract

In this article, we explain the important role neuroscience plays in economic and financial environments. Hence, we present neuroeconomics as a way to describe how decision-making processes affect brain activity, focusing especially on the importance of economic and financial decisions. We answer some questions regarding the role of emotions in finance, the psychological factors present in financial markets, and how neuropsychological stimuli affect our economic decisions. We conclude by citing the main research in the area of neuroscience in financial decision-making processes, and highlight further research projects in these areas.

Downloads

Download data is not yet available.

Author Biographies

Guillermo Mateu, Burgundy School of Business (France).

PhD in Economy and Associated Professor at the Burgundy School of Business (France) and the co-director of the Advance Corporate Finance Master’s degree. His research is based on Experimental Economics and decision-making processes, mainly focusing on behavioural economics, neuroeconomics, bargaining, communication, and strategy in financial markets.

Lucas Monzani, Richard Ivey Business School (Western Ontario University, Canada).

PhD in the Psychology of Human Resources and Master Erasmus Mundus in Work, Organizational, and Personnel Psychology. He is a postdoctoral fellow at the Richard Ivey Business School (Western Ontario University, Canada), and an associate researcher at IDOCAL (University of Valencia, Spain) and CLBO (Goethe Universität, Germany). His research interests lie within authentic leadership.

Roger Muñoz Navarro, Department de Personality, Assessment & Psychological Treatments of the Faculty of Psychology, University of Valencia (Spain).

PhD in Health Psychology, an MSc in Research and Psychological Treatments, and an MSc degree in Clinical Neuropsychology. He is an Adjunct Professor in the Department of Personality, Assessment & Psychological Treatments in the Faculty of Psychology, at the University of Valencia (Sapin) and a researcher in the field of Clinical and Health Psychology in the Spanish National Health System. His research interests also lie in the field of Neuroeconomics and Political Neuroscience.

References

Adolphs, R., Gosselin, F., Buchanan, T. W., Tranel, D., Schyns, P., & Damasio, A. R. (2005). A mechanism for impaired fear recognition after amygdala damage. Nature433(7021), 68–72. doi: 10.1038/nature03086

Bechara, A., Damasio, H., & Damasio, A. R. (2000). Emotion, decision making and the orbitofrontal cortex. Cerebral Cortex10(3), 295–307. doi: 10.1093/cercor/10.3.295

Bertrand, M., Mullainathan, S., & Shafir, E. (2006). Behavioral economics and marketing in aid of decision making among the poor. Journal of Public Policy & Marketing25(1), 8–23. doi: 10.1509/jppm.25.1.8

Biel, A., & Gärling, T. (1995). The role of uncertainty in resource dilemmas. Journal of Environmental Psychology15(3), 221–233. doi: 10.1016/0272-4944(95)90005-5

Blanchard, O. J., & Watson, M. W. (1982). Bubbles, rational expectations and financial markets. NBER Working Paper Series945. doi: 10.3386/w0945

Breiter, H. C., Aharon, I., Kahneman, D., Dale, A., & Shizgal, P. (2001). Functional imaging of neural responses to expectancy and experience of monetary gains and losses. Neuron30(2), 619–639. doi: 10.1016/S0896-6273(01)00303-8

Camerer, C. (2007). Neuroeconomics: Using neuroscience to make economic predictions. The Economic Journal117(519), C26–C42. doi: 10.1111/j.1468-0297.2007.02033.x

Camerer, C., Loewenstein, G., & Prelec, D. (2005). Neuroeconomics: How neuroscience can inform economics. Journal of Economic Literature43(1), 9–64. doi: 10.1257/0022051053737843

Damasio, H., Grabowski, T., Frank, R., Galaburda, A. M., & Damasio, A. R. (1994). The return of Phineas Gage: Clues about the brain from the skull of a famous patient. Science264(5162), 1102–1105. doi: 10.1126/-science.8178168

Davidson, R. J., Putnam, K. M., & Larson, C. L. (2000). Dysfunction in the neural circuitry of emotion regulation—A possible prelude to violence. Science289(5479), 591–594. doi: 10.1126/science.289.5479.591

Gallese, V., Keysers, C., & Rizzolatti, G. (2004). A unifying view of the basis of social cognition. Trends in Cognitive Sciences8(9), 396–403. doi: 10.1016/j.tics.2004.07.002

Gross, J. J., & John, O. P. (2003). Individual differences in two emotion regulation processes: Implications for affect, relationships, and well-being. Journal of Personality and Social Psychology85(2), 348–362. doi: 10.1037/0022-3514.85.2.348

Güth, W., Schmittberger, R., & Schwarze, B. (1982). An experimental analysis of ultimatum bargaining. Journal of Economic Behavior and Organization3(4), 367–388. doi: 10.1016/0167-2681(82)90011-7

Hsu, M., Bhatt, M., Adolphs, R., Tranel, D., & Camerer, C. F. (2005). Neural systems responding to degrees of uncertainty in human decision-making. Science310(5754), 1680–1683. doi: 10.1126/science.1115327

Jin, H., & Zhou, X. Y. (2011). Greed, leverage, and potential losses: A prospect theory perspective. Mathematical Finance23(1), 122–142. doi: 10.1111/j.1467-9965.2011.00490.x

Judge, T. A., & Bono, J. E. (2001). Relationship of core self-evaluations traits — self-esteem, generalized self-efficacy, locus of control, and emotional stability — with job satisfaction and job performance: A meta-analysis. Journal of Applied Psychology86(1), 80–92. doi: 10.1037/0021-9010.86.1.80

Kahneman, D. (2003). A perspective on judgment and choice: Mapping bounded rationality. American Psychologist58(9), 697–720. doi: 10.1037/0003-066X.58.9.697

Kosfeld, M., Heinrichs., M, Zak, P. J., Fi­sch­bacher, U., & Fehr, E. (2005). Oxytocin increases trust in humans. Nature, 435(2), 673–676. doi: 10.1038/nature03701

Low, C. (2004). The fear and exuberance from implied volatility of S&P 100 Index Options. The Journal of Business77(3), 527–546. doi: 10.1086/386529

Mayer, J. D., Roberts, R. D., & Barsade, S. G. (2008). Human abilities: Emotional inte­lligence­. Annual Review of Psychology59, 507–536. doi: 10.1146/annurev.psych. 59.103006.093646

Mehta, P. H., & Beer, J. (2010). Neural mecha­nisms of the testosterone–aggression rela­tion: The role of orbitofrontal cortex. Journal of Cognitive Neuroscience22(10), 2357–2368. doi: 10.1162/jocn.2009.21389

Rick, S., & Loewenstein, G. (2008). The role of emotion in economic behavior. In M. Lewis, J. M., Haviland-Jones, & L. Feldman Barret (Eds.), Handbook of emotionsThird edi­tion (pp. 138–156). Nueva York, NY: Guilford Press.

Shiv, B., Loewenstein, G., Bechara, A., Damasio, H., & Damasio, A. R. (2005). Investment behavior and the negative side of emotion. Psychological Science16(6), 435–439. doi: 10.1111/j.0956-7976.2005.01553.x

Tseng, K. C. (2006). Behavioral finance, bounded rationality, neuro-finance, and traditional finance. Investment Management and Financial Innovations3(4), 7–18.

Westerhoff, F. H. (2004). Greed, fear and stock market dynamics. Physica A: Statistical Mechanics and its Applications343, 635–642. doi: 10.1016/j.physa.2004.06.059

Zak, P. J., Kurzban, R., Ahmadi, S., Swerdloff, R. S., Park, J., Efremidze, L., ...  Matzner, W. (2009). Testosterone administration decreases generosity in the ultimatum game. PLoS One4(12), e8330. doi: 10.1371/journal.pone.0008330

Downloads

Published

2018-06-05

How to Cite

Mateu, G., Monzani, L., & Muñoz Navarro, R. (2018). The role of the brain in financial decisions: A viewpoint on neuroeconomics. Metode Science Studies Journal, (8), 6–15. https://doi.org/10.7203/metode.0.6923
Metrics
Views/Downloads
  • Abstract
    3811
  • PDF
    1206

Metrics

Similar Articles

> >> 

You may also start an advanced similarity search for this article.