How Human Brain Works During Financial Investment Decisions?

Abstract

This investigation is among the first to analyze the patterns of brain activity associated with financial decision making in male and female. We try to identify brain areas associated with risk evaluations of stock investments. Based on EEG technology and Low Resolution Brain Tomography we find something very new in the area: men and women use different neural circuits to make financial investment decisions. We also find that, on average, female trade less stock in each investment decision and make more decisions to sell than men, what is congruent with literature that describes that normally male have more optimistic aspirations in negotiations than female (Babcock, 2003 and Riley & Babcock, 2002) and female try to make investments decision that produce financial return in short-term period (Overman et al., 2004). More interesting, the final portfolio value were not quite different for males and females what implies that although using different neural circuits to make decisions, both genders are equally efficient in their decisions, even using different part of the brain to make the same kind of investment decisions.

Keywords: Financial Investment Decisions; Brain Neural Activity; Low Resolution Brain Tomography

JEL Classification: C92; G1; G31