Path Dependence in Risky Choice: Affective and Deliberative Processes in Brain and Behavior

40 Pages Posted: 28 Jan 2014 Last revised: 6 Dec 2014

Kaisa Hytönen

Laurea University of Applied Sciences

Guido Baltussen

Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE)

Martijn J. van den Assem

VU University Amsterdam - Faculty of Economics and Business Administration

Vasily Klucharev

Erasmus University Rotterdam (EUR) - Rotterdam School of Management (RSM); Radboud University Nijmegen; National Research University Higher School of Economics

Alan G. Sanfey

University of Arizona

A. Smidts

Erasmus Research Institute of Management (ERIM)

Abstract

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

Suggested Citation

Hytönen, Kaisa and Baltussen, Guido and van den Assem, Martijn J. and Klucharev, Vasily and Sanfey, Alan G. and Smidts, A., Path Dependence in Risky Choice: Affective and Deliberative Processes in Brain and Behavior. Journal of Economic Behavior and Organization, Vol. 107 (Part B), pp. 566-581, November 2014. Available at SSRN: https://ssrn.com/abstract=2385857

Kaisa Hytönen

Laurea University of Applied Sciences ( email )

Ratatie 22
Vantaa, FI-01300
Finland

Guido Baltussen

Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE) ( email )

P.O. Box 1738
3000 DR Rotterdam, NL 3062 PA
Netherlands

Martijn J. Van den Assem

VU University Amsterdam - Faculty of Economics and Business Administration ( email )

De Boelelaan 1105
Amsterdam, 1081HV
Netherlands

Vasily Klucharev

Erasmus University Rotterdam (EUR) - Rotterdam School of Management (RSM) ( email )

Rotterdam
Netherlands

Radboud University Nijmegen ( email )

Nijmegen, 6500 HK
Netherlands

National Research University Higher School of Economics ( email )

Myasnitskaya street, 20
Moscow, Moscow 119017
Russia

Alan G. Sanfey

University of Arizona ( email )

Tucson, AZ 85721
United States

Ale Smidts (Contact Author)

Erasmus Research Institute of Management (ERIM) ( email )

P.O. Box 1738
3000 DR Rotterdam
Netherlands

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