Path Dependence in Risky Choice: Affective and Deliberative Processes in Brain and Behavior
40 Pages Posted: 28 Jan 2014 Last revised: 6 Dec 2014
Decision-makers show an increased risk appetite when they gamble with previously won money, the house money effect, and when they have a chance to make up for a prior loss, the break even effect. To explore the origins of these effects, we use functional magnetic resonance imaging to record the brain activities of subjects while they make sequential risky choices. The behavioral data from our experiment confirm the path dependence of choices, despite the short trial duration and the many task repetitions required for neuroimaging. The brain data yield evidence that the increased risk appetite after gains and losses is related to an increased activity of affective brain processes and a decreased activity of deliberative brain processes.
Keywords: house money effect, break even effect, neuroeconomics, functional magnetic resonance imaging (fMRI), brain imaging, risky choice
JEL Classification: D87
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