The Affective Impact of Financial Skewness on Neural Activity and Choice

PLoS ONE, Vol. 6, No. 2, February 2011

7 Pages Posted: 17 Feb 2011 Last revised: 22 Feb 2011

See all articles by Charlene C. Wu

Charlene C. Wu

Stanford University - Psychology

Peter Bossaerts

University of Melbourne - Department of Finance

Brian Knutson

Stanford University - Psychology

Date Written: February 15, 2011

Abstract

Few finance theories consider the influence of "skewness" (or large and asymmetric but unlikely outcomes) on financial choice. We investigated the impact of skewed gambles on subjects' neural activity, self-reported affective responses, and subsequent preferences using functional magnetic resonance imaging (FMRI). Neurally, skewed gambles elicited more anterior insula activation than symmetric gambles equated for expected value and variance, and positively skewed gambles also specifically elicited more nucleus accumbens (NAcc) activation than negatively skewed gambles. Affectively, positively skewed gambles elicited more positive arousal and negatively skewed gambles elicited more negative arousal than symmetric gambles equated for expected value and variance. Subjects also preferred positively skewed gambles more, but negatively skewed gambles less than symmetric gambles of equal expected value. Individual differences in both NAcc activity and positive arousal predicted preferences for positively skewed gambles. These findings support an anticipatory affect account in which statistical properties of gambles - including skewness - can influence neural activity, affective responses, and ultimately, choice.

Keywords: neuroeconomics, fmri, nucleus accumbens, insula, decision-making, affect, finance, gain, loss, reward, punishment, human

JEL Classification: C91, D81, G11

Suggested Citation

Wu, Charlene C. and Bossaerts, Peter L. and Knutson, Brian, The Affective Impact of Financial Skewness on Neural Activity and Choice (February 15, 2011). PLoS ONE, Vol. 6, No. 2, February 2011 , Available at SSRN: https://ssrn.com/abstract=1762399

Charlene C. Wu (Contact Author)

Stanford University - Psychology ( email )

Stanford, CA 94305
United States

Peter L. Bossaerts

University of Melbourne - Department of Finance ( email )

Faculty of Economics and Commerce
Department of Finance
Carlton, Victoria 3010
Australia

HOME PAGE: http://bmmlab.org

Brian Knutson

Stanford University - Psychology ( email )

Stanford, CA 94305
United States
650 723 7431 (Phone)
650 725 5699 (Fax)

HOME PAGE: http://psychology.stanford.edu/~knutson

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
80
Abstract Views
804
rank
342,018
PlumX Metrics