Article

Investment Behavior and the Negative Side of Emotion

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Abstract

Can dysfunction in neural systems subserving emotion lead, under certain circumstances, to more advantageous decisions? To answer this question, we investigated how normal participants, patients with stable focal lesions in brain regions related to emotion (target patients), and patients with stable focal lesions in brain regions unrelated to emotion (control patients) made 20 rounds of investment decisions. Target patients made more advantageous decisions and ultimately earned more money from their investments than the normal participants and control patients. When normal participants and control patients either won or lost money on an investment round, they adopted a conservative strategy and became more reluctant to invest on the subsequent round; these results suggest that they were more affected than target patients by the outcomes of decisions made in the previous rounds.

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... While in the WOM context, studies have shown that emotions impact consumer outcomes (Richins, 1997;Shiv et al., 2005), such empirical evidence is missing in the eWOM context. The premise of the Media Richness Theory (Daft & Lengel, 1986) is that WOM and eWOM are different because WOM is a richer medium in interpersonal communications, while eWOM is leaner, as the element of feedback is low. ...
... Emotions play a key role in consumers' purchase decision-making (Berger, 2011). Prior studies reveal that customers are not only motivated to produce emotional content (Hennig-Thurau et al., 2004) but their judgments of the product are also influenced by the emotions embedded within WOM (Shiv et al., 2005). WOM literature shows that emotions have a significant impact on attitudes (Zablocki et al., 2019). ...
... Prior studies not only reveal that customers are motivated to produce emotional content, but also that the emotions embedded in WOM influence customers' judgments of the product (Shiv et al., 2005). However, for this argument to hold good in the online context, it is believed that the review readers can identify and distinguish between discrete emotions in an OCR, i.e. the emotions are available within the customers' knowledge structures (Craciun et al., 2020). ...
Article
Traditional Word-of-Mouth (WOM) literature shows that emotions embedded in advertising appeals or referrals/reviews influence consumer buying journey. However, there is a paucity of research exploring the distribution and impact of emotional content in “online” consumer reviews (OCRs). Hence, in this study, an attempt is made to examine the emotional content in OCRs and to study the influence of discrete positive and negative emotions on the perceived OCR helpfulness, by classifying them based on their valence and arousal. Further, the impact of the inconsistency between the star rating of a review and the qualitative review-related factors (i.e. emotions and valence) is analyzed. This study uses Natural Language Processing (NLP) and text-mining techniques to retrieve valence and emotions from 100,000 reviews from Yelp.com and employs model testing methods to verify the hypotheses. The results reveal that: (1) both qualitative/latent (emotions and valence) and quantitative/manifest review message factors (star ratings, word count) are important in determining the OCR helpfulness; (2) the difference in arousal (high/low) and valence (positive/negative) has a differential impact on OCR helpfulness; (3) within high-arousal emotions, negative-valence emotions influence OCR helpfulness more than positive-valence emotions; and (4) consumers’ perceptions of OCR helpfulness depends on the consistency between the qualitative and quantitative content factors.
... Experimental results also confirmed a positive relationship between trait anxiety and gambler performance and even showed that high emotional control would reduce gambler's outcomes (Werner et al. 2009). Extensive experiments in patients with a lesion in the region of the brain that controls emotions produced more favorable results than healthy patients (Shiv et al. 2005a(Shiv et al. , 2005b. Affect also created the illusion of control (Alloy et al. 1981;Alloy and Abramson 1982;Mesken et al. 2005). ...
... Other emotions, such as anger, also encourage a sense of being able to govern outcomes (Lerner et al. 2015;Lerner and Keltner 2001). People with emotional problems also make bolder decisions and obtain more significant potential gains or losses than ordinary people (Shiv et al. 2005b). ...
... Other studies also discovered that past failure might reduce painful emotions involved in investing (Shiv et al. 2005b). This finding could explain this study's lack of emotional connection and investment decision making. ...
Article
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Early investors possess unique sets of decision-making characteristics. They are more open to experience and eager to face risks. However, to the best of the authors’ knowledge, the discussions of nascent investors upon making the investment decision and its eroding biases were still elusive. The vital role of emotion as a bias in decision making was also inadequately addressed. This study enhanced behavioral finance knowledge by examining emotion’s role in regulating the illusion of control, overconfidence, and investors’ decision making. In total, 456 initial investors in Indonesia participated in online questionnaires, forming the data for covariance-based structural model analysis. This study found that emotion significantly increased the illusion of control, but not overconfidence or decision making, contrary to the bulk of previous studies. The illusion of control exhibited a substantial significant effect of as much as 86.4% toward overconfidence, followed by a considerable increase in decision making. The results of our study also pointed to the unique chain effects of biases affecting the decision-making process of nascent investors in the emerging market. This finding implied they possessed a unique bias mechanism in constructing their decision.
... Despite these neuroimaging data, we have relatively little causal information regarding the brain regions involved during risky decision-making. Yet, lesions of the medial prefrontal cortex consistently resulted in increased risk-taking and disadvantageous behaviors (Bechara et al., 1994;Bechara et al., 1999;Clark et al., 2008;Sanfey et al., 2003;Shiv et al., 2005;Weller et al., 2007) or no difference from the control group (Leland & Grafman, 2005;Sanfey et al., 2003), whereas lesions of the insula led to both decreased risky choices or increased betting behaviors compared to healthy subjects (Clark et al., 2008;Shiv et al., 2005). These discrepancies between studies and with the fMRI literature may be explained by the scope of the brain lesions, which in some cases extend well beyond the targeted regions, thus reaching adjacent areas that may also contribute to the observed deficits. ...
... Despite these neuroimaging data, we have relatively little causal information regarding the brain regions involved during risky decision-making. Yet, lesions of the medial prefrontal cortex consistently resulted in increased risk-taking and disadvantageous behaviors (Bechara et al., 1994;Bechara et al., 1999;Clark et al., 2008;Sanfey et al., 2003;Shiv et al., 2005;Weller et al., 2007) or no difference from the control group (Leland & Grafman, 2005;Sanfey et al., 2003), whereas lesions of the insula led to both decreased risky choices or increased betting behaviors compared to healthy subjects (Clark et al., 2008;Shiv et al., 2005). These discrepancies between studies and with the fMRI literature may be explained by the scope of the brain lesions, which in some cases extend well beyond the targeted regions, thus reaching adjacent areas that may also contribute to the observed deficits. ...
Thesis
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Full text available at : http://www.theses.fr/2021GRALS043 // Identifying factors whose fluctuations are associated with choice inconsistency is a major issue for rational decision theory. In this thesis, we investigated how brain activity partly explain choice variability during a multi-attribute choice task by taking advantage of the rare opportunity to either directly record intracortical activity in the human brain or to perform intracortical stimulation to probe the causal involvement of key cortical regions. In the first study, we investigated the neuro-computational mechanisms through which mood fluctuations may bias human choice behavior. Intracerebral EEG data were collected in a large group of participants (n = 30), as they performed interleaved quiz and choice tasks. Baseline neural activity preceding choice onset was confronted first to mood level, estimated by a computational model integrating the feedback received in the quiz task, and then with the weighting of option attributes, in a computational model predicting risk attitude in the choice task. Results showed that 1) elevated broadband gamma activity (BGA) in the ventromedial prefrontal cortex (vmPFC) and dorsal anterior insula (daIns) respectively signaled periods of high and low mood, and 2) increased BGA in vmPFC and daIns respectively promoted and tempered risk-taking by overweighting gain versus loss prospects. Thus, incidental feedback induces brain states that correspond to different moods and biases the comparison of safe and risky options. More generally, this first study might explain why people experiencing positive (or negative) outcomes in some part of their lives tend to expect success (or failure) in any other. In the second study, we focused on the neuro-anatomical correlates underlying the effects of visual fixations on multi-attribute choices. Intracerebral EEG data were collected simultaneously with gaze data in a large group of participants (n = 38), as they performed a multi-attribute accept/reject choice task. Results from study 2 showed that 1) gaze-dependent neural activity (BGA) correlated positively with the value of a given attribute when fixated and negatively with the attribute’s value when not fixated in a large brain network, 2) gaze-dependent neural activity in the vmPFC positively predicted subjects’ choices when looking at gains and 3) gaze-dependent neural activity in the aINS negatively predicted subjects’ choices when looking at losses. Thus, our findings specify key neuro-anatomical insights into how gaze pattern interferes with neural activity to bias multi-attribute choices. Lastly, in the third empirical study of this thesis, we investigated the effect of targeted disruption of anterior insular cortex and ventromedial prefrontal cortex on risky choices. The effect of intracranial electrical stimulation (iES) delivered directly to the human cortex at 50 Hz in a group of epileptic patients (n = 13) were examined while the subjects performed a choice task similar to that used in the previous two studies. Results showed a functional dissociation within the anterior insula: iES on the dorsal anterior insula (daIns) increased risky choices whereas iES on the ventral anterior insula (vaIns) promoted safer choices. Conversely, intracranial electrical stimulation on the vmPFC tended to promote risk-taking (as in daIns). These rare cases highlight the potential causal importance of these brain areas during multi-attribute choices involving uncertainty and provide clues for future mechanistic studies of the anatomy and physiology of choices under uncertainty. Overall, this PhD has expanded knowledge of the neurocomputational mechanisms underlying multi-attribute choice by suggesting that dissociable brain systems may be involved in representing the value of appetitive vs. aversive attributes both prior to and during the choice process.
... On the other side, in complex contexts with a higher degree of uncertainty (known as ambiguous tasks), as occurs in industrial contexts, it could not be feasible to follow reasonable procedures, and many decisions must be made relying on our intuition or our experiences (Shiv et al. 2005;Raab and Gigerenzer 2015). Here, cognitive processes, such as working memory, reinforcement learning, and reversal learning (Bechara and Damasio 2005a, b;Dougherty et al. 2005a, b;Starcke and Brand 2012). ...
... In these contexts, given that there would not necessarily be a "best" decision or, if it exists, it can be complicated to find, alternative criteria to rationality are raised. For example, it can be assessed the adaptivity of decisions, the risk taken, or impulsivity (Haselton et al. 2009;Santos and Rosati 2015); but also other aspects focused on the decisional process rather than on the outcome, such as the ability of participants to learn which alternatives are favorable based on the feedback obtained from successive choices (Shiv et al. 2005;Fridberg et al. 2010;Starcke and Brand 2012). New trends in the decision-making field suggest the need to assess the results and the decisional processes to adequately address the complexity of this cognitive ability (Keys and Schwartz 2007;Brugnach et al. 2011). ...
Chapter
Decision-making involves numerous associated cognitive processes (memory, attention, learning, motor system) and is responsible for the final behavior of employees. Decision-making can be effective or lead to errors with significant consequences for organizations (economic or human). For this reason, decision-making is currently being studied extensively from different fields and with different approaches. From Psychology, human decision-making has classically been subject to manual or computerized methods from which general conclusions were drawn. However, decision-making is a highly complex process involving numerous subprocesses that increase the mental workload. In this regard, in recent years, numerous algorithms have been developed from computational models that allow different parameters of decision-making to be extracted and that are making it possible to scrutinize the processes underlying decision-making. Thus, based on Bayesian statistics, computational decision-making models can provide more specificity in studying human decision-making through complex and more robust algorithms to explain and predict this process. Therefore, this chapter aims to review the paradigms of human decision-making assessment (from a classical to a computational perspective) that allow the reader to have a clear and updated view of evaluating human decision-making. Considering that the tasks shown come from laboratory contexts or basic science, practical implications, and guidelines for their use by ergonomists and mental workload experts in industrial settings will be shown.
... On the other side, in complex contexts with a higher degree of uncertainty (known as ambiguous tasks), as occurs in industrial contexts, it could not be feasible to follow reasonable procedures, and many decisions must be made relying on our intuition or our experiences (Shiv et al. 2005;Raab and Gigerenzer 2015). Here, cognitive processes, such as working memory, reinforcement learning, and reversal learning (Bechara and Damasio 2005a, b;Dougherty et al. 2005a, b;Starcke and Brand 2012). ...
... In these contexts, given that there would not necessarily be a "best" decision or, if it exists, it can be complicated to find, alternative criteria to rationality are raised. For example, it can be assessed the adaptivity of decisions, the risk taken, or impulsivity (Haselton et al. 2009;Santos and Rosati 2015); but also other aspects focused on the decisional process rather than on the outcome, such as the ability of participants to learn which alternatives are favorable based on the feedback obtained from successive choices (Shiv et al. 2005;Fridberg et al. 2010;Starcke and Brand 2012). New trends in the decision-making field suggest the need to assess the results and the decisional processes to adequately address the complexity of this cognitive ability (Keys and Schwartz 2007;Brugnach et al. 2011). ...
Chapter
This research focuses on inventory management in Peru's container glass products manufacturer. Glass is a packaging option aligned to human safety and planet sustainability. We analyzed its strategic situation aligned to its operational plan. Then, the supply chain strategy develops an inbound raw material and outbound products balance, with the interactions between purchasing, production and sales. The proposed solution optimized the paint flow, reduced its inventory and its related material obsolescence. The stored data existed in the SAP S/4 Hana cloud system, simplifying the project execution from the bottom line to the up line and relating with the company's green line vision. Due to the increasing influence of the information systems and their implementation for specific problems, we presented an MRP, S&OP or IBP dilemma.KeywordsSupply chain managementGlass producerInventory management
... • Financial incentives: To motivate engagement, participants were told their investment performance would increase their total compensation for the study, inspired by previous studies that used real-life incentives to increase engagement [41,42]. com/mitmedialab/ai-superstition. ...
Preprint
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This thesis investigates the psychological factors that influence belief in AI predictions, comparing them to belief in astrology- and personality-based predictions, and examines the "personal validation effect" in the context of AI, particularly with Large Language Models (LLMs). Through two interconnected studies involving 238 participants, the first study explores how cognitive style, paranormal beliefs, AI attitudes, and personality traits impact perceptions of the validity, reliability, usefulness, and personalization of predictions from different sources. The study finds a positive correlation between belief in AI predictions and belief in astrology- and personality-based predictions, highlighting a "rational superstition" phenomenon where belief is more influenced by mental heuristics and intuition than by critical evaluation. Interestingly, cognitive style did not significantly affect belief in predictions, while paranormal beliefs, positive AI attitudes, and conscientiousness played significant roles. The second study reveals that positive predictions are perceived as significantly more valid, personalized, reliable, and useful than negative ones, emphasizing the strong influence of prediction valence on user perceptions. This underscores the need for AI systems to manage user expectations and foster balanced trust. The thesis concludes with a proposal for future research on how belief in AI predictions influences actual user behavior, exploring it through the lens of self-fulfilling prophecy. Overall, this thesis enhances understanding of human-AI interaction and provides insights for developing AI systems across various applications.
... Потребностно-информационная теория эмоций внесла новый подход в методологию исследования индивидуально-типологических различий, в основе которого лежат принципы неопределенности среды и вероятностного подкрепления [11,14,15,66]. Эти принципы логически вытекают из информационной теории эмоций, согласно кото-рой эмоция есть производная от удовлетворения или неудовлетворения текущей потребности в условиях дефицита или избытка прагматической информации. ...
Article
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The current paper shows the importance of the need-information theory of P.V. Simonov in the development of modern neurobiology of behavior. The essence of the theory and the underlying fundamental principles of the organization of behavior-environmental uncertainty, probabilistic predictions of reinforcement are briefly described. The first section reviews the current data on the important role of uncertain environments and probabilistic predictions in organization of behavior. Attention is drawn to the reinforcement prediction error and its significance in the organization of both social and individual behavior, as well as its role in the consolidation and reconsolidation of memory. The second section shows the influence of need-information theory on the development of the theoretical and experimental basis of individual differences, with a scheme presented for explaining such differences based on the fundamental principles of theory. The next section examines the role of need-information theory in understanding the mechanisms of decision-making under risk conditions, and the importance of the theory as a conceptual basis for the new developing field of science – neuroeconomics. And finally, the 4th section considers in detail the model of emotional resonance (contagion) proposed by P. Simonov, and modern views on social behavior, in general, and the altruistic and selfish behavior of rodents, in particular.
... Investing in a crowdfunding campaign is complex and involves a series of decisions, including choosing which project to participate in and how much to contribute. Despite the importance of emotions in economic decisions (Shiv et al., 2005;Kahneman and Riepe, 1998;Loewenstein, 2000;Thaler, 2000), crowdfunding research has focused primarily on analyzing the characteristics of different types of crowdfunding (Chang, 2020;Cumming and Hornuf, 2018), factors contributing to the success of entrepreneurs in raising capital (Colombo et al., 2015) or the performance of different crowdfunding platforms (Belleflamme et al., 2015;Kaminski and Hopp, 2020;Mollick, 2014;Shneor and Munim, 2019;Bonzanini et al., 2016;Cumming et al., 2017). Relatively less attention has been paid to the other side of the equation: the factors influencing investor participation and contribution to sustainable crowdfunding (Vasileiadou et al., 2016;. ...
Preprint
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Achieving the European Union's ambitious climate change targets will require substantial additional investment, particularly from private citizens. Despite the considerable potential for citizens to participate in sustainable initiatives, there is a significant gap between their expressed interest and actual investment behavior. Crowdfunding has emerged as a promising method to reduce barriers to citizen participation, but the persistent attitude-behavior gap remains a critical obstacle. We analyze how emotional attachment can bridge this gap and enhance the success of crowdfunding in community energy projects through an experimental design involving a representative sample of 3,500 European citizens. Participants were randomly assigned to one of two sustainable crowdfunding conditions. In the 'football' condition, they were exposed to a campaign aimed at reducing the carbon footprint of a football stadium, while the control group viewed a campaign for a neutral building (school, library). Participants were then asked to indicate their likelihood of participating in the campaign (LTP). Emotional attachment was assessed by measuring participants' interest in football. Our results show that the interaction between emotional attachment and the football condition significantly increases LTP by 10 percentage points. In addition, our results are consistent with the Theory of Planned Behaviour (Ajzen, 1991), highlighting that prior knowledge of crowdfunding, environmental awareness, and social norms significantly influence investment decisions. Our analysis indicates that communities of interest, formed around shared passions rather than geographical proximity, are more effective motivators than traditional communities of place. As a result, integrating community energy projects into existing, emotionally connected communities could be a key strategy for unlocking their full potential.
... • Financial incentives: To motivate engagement, participants were told their investment performance would increase their total compensation for the study, inspired by previous studies that used real-life incentives to increase engagement [88,89]. ...
Preprint
Full-text available
This study investigates psychological factors influencing belief in AI predictions about personal behavior, comparing it to belief in astrology and personality-based predictions. Through an experiment with 238 participants, we examined how cognitive style, paranormal beliefs, AI attitudes, personality traits, and other factors affect perceived validity, reliability, usefulness, and personalization of predictions from different sources. Our findings reveal that belief in AI predictions is positively correlated with belief in predictions based on astrology and personality psychology. Notably, paranormal beliefs and positive AI attitudes significantly increased perceived validity, reliability, usefulness, and personalization of AI predictions. Conscientiousness was negatively correlated with belief in predictions across all sources, and interest in the prediction topic increased believability across predictions. Surprisingly, cognitive style did not significantly influence belief in predictions. These results highlight the "rational superstition" phenomenon in AI, where belief is driven more by mental heuristics and intuition than critical evaluation. We discuss implications for designing AI systems and communication strategies that foster appropriate trust and skepticism. This research contributes to our understanding of the psychology of human-AI interaction and offers insights for the design and deployment of AI systems.
... This region plays a key role in emotional processing and valuation (Gu et al. 2015;Rolls et al. 2020). So, patients with vmPFC lesions manifested decreased sensitivity to emotional cues, which leads to difficulties in reinforcement-learning (Bechara et al. 1994;, decreased guilty (Krajbich et al. 2009), decreased risk and loss aversion (Clark et al. 2008;Genauck et al. 2017;Shiv et al. 2005), and increased preference inconsistency in both risky (Fellows and Farah 2007) and social contexts (Gu et al. 2015). Multiple studies revealed, precisely, that people with ASD presented an abnormal functional brain development in vmPFC between childhood and adulthood (Murphy et al. 2017), and a smaller structure and function in this region in both children (Kishida et al. 2019;Swartz et al. 2013) and adults (Lau et al. 2020;Rolls et al. 2020;Salehinejad et al. 2021;Watanabe et al. 2012). ...
Article
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In risky contexts, autism spectrum disorder (ASD) individuals exhibit more logical consistency and non-emotional decisions than do typical adults (TAs). This way of deciding could be also prevailing in social contexts, leading to maladaptive decisions. This evidence is scarce and inconsistent, and further research is needed. Recent developments in computational modeling allow analysis of decisional subcomponents that could provide valuable information to understand the decision-making and help address inconsistencies. Twenty-seven individuals with ASD and 25 TAs were submitted to a framing-task and the ultimatum game (UG). The Rescorla–Wagner computational model was used to analyze UG decisions. Results showed that in the UG, the ASD group exhibited a higher utilitarianism, characterized by lower aversion to unfairness and higher acceptance of offers. Moreover, this way of deciding was predicted by the higher economic rationality found in the framing task, where people with ASD did not manifest emotional biases such as framing effect. These results could suggest an atypical decision making, highly logical and non-emotional, as a robust feature of ASD.
... Indeed, some scholars characterize emotions as undesirable biases (e.g. Shiv et al., 2005). However, other researchers disagree and assert that strong emotions lead to higher decision quality (Seo and Barrett, 2007). ...
Article
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Purpose Managers must make numerous strategic decisions in order to initiate and implement a business model innovation (BMI). This paper examines how managers perceive the management team interacts when making BMI decisions. The paper also investigates how group biases and board members’ risk willingness affect this process. Design/methodology/approach Empirical data were collected through 26 in-depth interviews with German managing directors from 13 companies in four industries (mobility, manufacturing, healthcare and energy) to explore three research questions: (1) What group effects are prevalent in BMI group decision-making? (2) What are the key characteristics of BMI group decisions? And (3) what are the potential relationships between BMI group decision-making and managers' risk willingness? A thematic analysis based on Gioia's guidelines was conducted to identify themes in the comprehensive dataset. Findings First, the results show four typical group biases in BMI group decisions: Groupthink, social influence, hidden profile and group polarization. Findings show that the hidden profile paradigm and groupthink theory are essential in the context of BMI decisions. Second, we developed a BMI decision matrix, including the following key characteristics of BMI group decision-making managerial cohesion, conflict readiness and information- and emotion-based decision behavior. Third, in contrast to previous literature, we found that individual risk aversion can improve the quality of BMI decisions. Practical implications This paper provides managers with an opportunity to become aware of group biases that may impede their strategic BMI decisions. Specifically, it points out that managers should consider the key cognitive constraints due to their interactions when making BMI decisions. This work also highlights the importance of risk-averse decision-makers on boards. Originality/value This qualitative study contributes to the literature on decision-making by revealing key cognitive group biases in strategic decision-making. This study also enriches the behavioral science research stream of the BMI literature by attributing a critical influence on the quality of BMI decisions to managers' group interactions. In addition, this article provides new perspectives on managers' risk aversion in strategic decision-making.
... First, the deep anatomical location of these brain regions has posed challenges in targeting these areas using non-invasive stimulation methods (Howard et al., 2020;Manuel et al., 2019;Spagnolo et al., 2019). Additionally, lesion studies have yielded inconsistent results on risk-taking behavior that may be attributed to variations in the scope and precise location of brain lesions (Bechara et al., 1994(Bechara et al., , 1999Clark et al., 2008;Leland & Grafman, 2005;Reber et al., 2017;Sanfey et al., 2003;Shiv et al., 2005;Weller et al., 2007Weller et al., , 2009). Finally, intracranial electrical stimulation (iES) studies have rarely examined these regions (Duong et al., 2023;Yih et al., 2019) and have not combined iES with cognitive paradigms designed to tease apart precise decisionmaking processes. ...
Preprint
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Neural activities within the ventromedial prefrontal cortex and anterior insula are associated with economic choices. However, whether these brain regions are causally related to these processes remains unclear. To address this issue, we leveraged rare intracerebral electrical stimulation (iES) data in epileptic patients. We show that opposite effects of iES on choice depend on the location of stimulation on a dorso-ventral axis within each area, thus demonstrating dissociable neural circuits causally involved in accepting versus avoiding challenges.
... tapas que caracterizam o processo decisório deve ser considerado os efeitos do marcador somático com base nos estados emocionais do indivíduo, que o auxiliarão na percepção da recompensa ou punição em um processo associativo, fundamentado na reação afetiva de aprovação ou rejeição após cada uma das escolhas, através da identificação dos estímulos. Shiv et. al. (2005) afirmam que o investidor comum mostra um comportamento adaptativo baseado em uma estratégia de conservação de seu patrimônio quando experimenta uma perda, e se mostra mais relutante para efetuar investimentos posteriores. Caramico, A, Romaro, P., & Garcia, F. G. (2022) ...
Article
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A Moderna Teoria das Finanças apregoa que em um mercado eficiente os ajustes de preços relativos são realizados instantaneamente a cada nova informação gerada pelo ambiente. Não havendo possibilidade de algum player se antecipar aos demais. Portanto, a variável tempo não é considerada nesse modelo. Na prática os profissionais que percebem apenas segundos antecipadamente uma mudança de cenário, ou seja, um novo padrão de ocorrência que está se estabelecendo no mercado, podem se posicionar de forma a obter uma performance superior, além do homus economicus. No mercado financeiro, objeto do presente estudo, os profissionais estão expostos a um alto grau de estresse em função da necessidade de tomar decisões extemporâneas. De forma geral, eles têm que identificar rapidamente um padrão de ocorrência do evento em que se encontra inserida a sua decisão. A velocidade de raciocínio e de tomada de decisão são os seus maiores trunfos. Apresentaremos neste estudo que esses profissionais acabam tendo como característica uma melhor qualidade decisória sob estresse, mesmo fora da sua área de atuação. Procura-se demonstrar que tanto marcadores somáticos quanto as heurísticas e vieses de comportamento apresentados na teoria das finanças comportamentais estão presentes de forma substantiva na tomada de decisão influenciando-as.
... Indeed, some scholars characterize emotions as undesirable biases (e.g. Shiv et al., 2005). However, other researchers disagree and assert that strong emotions lead to higher decision quality (Seo and Barrett, 2007). ...
Article
In a highly dynamic environment, business model innovation (BMI) is a promising approach to remain competitive. In practice, however, adapting an existing business model and developing a new one remains a difficult task for managers of established firms. Therefore, scholars call for a comprehensive framework to guide managers through the BMI process. The purpose of our conceptual paper is to highlight when and at what organizational level critical internal BMI barriers occur in order to highlight the various leadership challenges during the BMI process at incumbent firms. We conduct an analysis including analyzing and categorizing critical BMI barriers identified from the literature based on the 4-I framework of Frankenberger et al. (2013). We derive an integrative framework that provides managers and researchers with a comprehensive overview of the internal barriers in the BMI process. We contribute to the current debate on the role of leadership, organizational structure, and organizational culture in BMI development. This paper provides an important foundation for two groups of readers: 1) academics who can establish theory-based relationships between the individual and organizational level, and 2) incumbent managers who can use the framework developed to derive company-specific policies to overcome their internal BMI obstacles.
... People with damage to this important region of the brain (vmPFC) were predictably unable to activate circuitry to engage subsequent emotion associated with loss aversion, for example. Shiv et al. (2005) found that when people with damage to their vmPFC participate in an experiment where they are asked to gamble with $20 on a coin flip, they do not exhibit nearly the same degree of loss aversion when compared to those without such damage. These participants made the gamble on 83.7% of occasions when compared to 57.6% in the group without such damage. ...
Chapter
Traditional finance and economic models often fail as descriptive models of human behaviour. While behavioural economists and cognitive psychologists demonstrated more practical alternatives to neoclassical economic theory, there remained a gap that would later be filled by physiologists and neuroscientists. There is a strong link between neural hardware and preferences. The field of neuroeconomics provides an integrated approach to financial decision-making that adds the understanding of genetics and neurobiology to that of cognitive psychology. This is set against the important backdrop of normative economic and finance theory that remains relevant in respect of what financial decision-makers should be aiming at. The field of neuroeconomics is one that remains in the exploratory phase, evidenced by the sometimes-contradictory findings that emerge as our understanding of the brain evolves. As the discipline of professional financial planning emerges, these learnings will become crucial in diagnosing and managing investor behaviour.KeywordsCognitive psychologyCortexAmygdalaLoss aversionFinancial decisionNeurobiologyGeneticsBehaviour taxDopamineNeuroeconomics
... Therefore, emotions gain insights into neuroeconomics [44]. However, emotions can also debase decision-making [46,47]. Decisions are influenced by emotions and partially based on the assumption that the decider can predict others' behaviors; empathy plays a role in decisions as well. ...
Article
The coronavirus disease 2019 (COVID-19) pandemic reveals the decision-making challenges faced by communities, governments, and international organizations, globally. Policymakers are much concerned about protecting the population from the deadly virus while lacking reliable information on the virus and its spread mechanisms and the effectiveness of possible measures and their (direct and indirect) health and socioeconomic costs. This review aims to highlight the various balanced policy decision that would combine the best obtainable scientific evidence characteristically provided by expert opinions and modeling studies. This article's main goal is to summarize the main significant progress in the understanding of neuroeconomics of decision-making and discuss the anatomy of decision making in the light of COVID-19 pandemic.
... Study 1A, which used an environment unfavorable to exploration, contributes to an expanding literature documenting situations in which biases help people make better decisions. Kahneman and Lovallo (1993), for example, showed that loss aversion and risk aversion can be beneficial to managers who are overconfident, whereas Shiv et al. (2005) showed that people with damage to emotion-related brain areas made better decisions in an environment in which risk-taking was beneficial. In contrast, as a result of its different payoff structure, Study 1B yields the more conventional result that loss aversion leads to lower payoffs. ...
Article
Many situations involving exploration, such as businesses expanding into new products or locations, expose the explorer to the potential for subjective losses. How does the potential to experience losses during the course of a search affect individuals' appetite for exploration? In three incentivized studies, we manipulate search outcomes by presenting participants either with a gain‐only environment or a gain‐loss environment. The two environments offer objectively identical incentives for exploration: Using a framing manipulation, we decrease gain‐loss payoffs and provide participants an initial endowment to offset the difference. Participants decide how to explore a one‐dimensional space, receiving payoffs based on their location each period. We predict and find that participants are motivated to avoid losses, which increases exploration when they are incurring losses but decreases exploration when they face the potential for losses. We conclude that exploration is driven by hope of potential gains, constrained by fear of potential losses, and motivated by avoidance of experienced losses.
... This shows that psychological factors contribute to the choice of investment type. This statement strengthens the flawed assumption that economists-psychologists put forward in refuting the traditional financial theory (Shiv et al., 2005;Poterba & Samwick, 1997 Their research explains that preference for risk has a relationship with a person's tendency to choose investments. One factor determining the level of courage to invest is determined by how much someone is interested in investing . ...
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... In addition, ACC, one of the neural bases of risk aversion [17], has been highlighted as an important region in emotional processing [78,79], which can modulate amygdala activity [80] and serve as a connection between the limbic system and the prefrontal cortex [81]. Finally, Shiv et al. [82] showed that patients with lesions in regions such as the amygdala or insula, which are closely related to emotions, showed less risk aversion than other patients with injuries in other regions not related to emotions or healthy controls. All this leads us to think that, if certain genes influence the availability of serotonin in the brain and this, in turn, can influence the brain's own activity (in this case, conditioning the capacity for emotional processing and regulation), behaviors such as risk aversion, which depend, at least partially, on this activity, would ultimately be affected. ...
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Richard H. Thaler is considered by many as responsible for the genesis of modern behavioural economics. His work highlighted violations of standard assumptions of economic theory and ultimately led to a monumental shift in economic analysis. Thaler showed that systematic deviations from the predictions of normative theory are not only prevalent but also have a significant impact on behaviour in a variety of market settings. His work has spawned multiple literatures in economics, marketing, and public policy, and launched the subfield of behavioural finance. This chapter attempts to capture his legacy by delineating his journey from graduate school to being awarded the 2017 Nobel Memorial Prize in Economic Science.KeywordsRichard ThalerBehavioural economicsMental accountingBehavioural finance Nudge Prospect theory
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Emotion is central to the quality and range of everyday human experience. The neurobiological substrates of human emotion are now attracting increasing interest within the neurosciences motivated, to a considerable extent, by advances in functional neuroimaging techniques. An emerging theme is the question of how emotion interacts with and influences other domains of cognition, in particular attention, memory, and reasoning. The psychological consequences and mechanisms underlying the emotional modulation of cognition provide the focus of this article.
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Does the period over which individuals evaluate outcomes influence their investment in risky assets? Results from this study show that the more frequently returns are evaluated, the more risk averse investors will be. The results are in line with the behavioral hypothesis of “myopic loss aversion,” which assumes that people are myopic in evaluating outcomes over time, and are more sensitive to losses than to gains. The results have relevance for the equity premium puzzle, and also for the marketing strategies of fund managers.
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Deciding advantageously in a complex situation is thought to require overt reasoning on declarative knowledge, namely, on facts pertaining to premises, options for action, and outcomes of actions that embody the pertinent previous experience. An alternative possibility was investigated: that overt reasoning is preceded by a nonconscious biasing step that uses neural systems other than those that support declarative knowledge. Normal participants and patients with prefrontal damage and decision-making defects performed a gambling task in which behavioral, psychophysiological, and self-account measures were obtained in parallel. Normals began to choose advantageously before they realized which strategy worked best, whereas prefrontal patients continued to choose disadvantageously even after they knew the correct strategy. Moreover, normals began to generate anticipatory skin conductance responses (SCRs) whenever they pondered a choice that turned out to be risky, before they knew explicitly that it was a risky choice, whereas patients never developed anticipatory SCRs, although some eventually realized which choices were risky. The results suggest that, in normal individuals, nonconscious biases guide behavior before conscious knowledge does. Without the help of such biases, overt knowledge may be insufficient to ensure advantageous behavior.
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The somatic marker hypothesis proposes that both the amygdala and the orbitofrontal cortex are parts of a neural circuit critical for judgment and decision-making. Although both structures couple exteroceptive sensory information with interoceptive information concerning somatic/emotional states, they do so at different levels, thus making different contributions to the process. We define "primary inducers" as stimuli that unconditionally, or through learning (e.g., conditioning and semantic knowledge), can (perceptually or subliminally) produce states that are pleasurable or aversive. Encountering a fear object (e.g., a snake), a stimulus predictive of a snake, or semantic information such as winning or losing a large sum of money are all examples of primary inducers. "Secondary inducers" are entities generated by the recall of a personal or hypothetical emotional event or perceiving a primary inducer that generates "thoughts" and "memories" about the inducer, all of which, when they are brought to memory, elicit a somatic state. The episodic memory of encountering a snake, losing a large sum of money, imagining the gain of a large sum of money, or hearing or looking at primary inducers that bring to memory "thoughts" pertaining to an emotional event are all examples of secondary inducers. We present evidence in support of the hypothesis that the amygdala is a critical substrate in the neural system necessary for triggering somatic states from primary inducers. The ventromedial cortex is a critical substrate in the neural system necessary for the triggering of somatic states from secondary inducers. The amygdala system is a priori a necessary step for the normal development of the orbitofrontal system for triggering somatic states from secondary inducers. However, once this orbitofrontal system is developed, the induction of somatic states by secondary inducers via the orbitofrontal system is less dependent on the amygdala system. Perhaps the amygdala is equivalent to the hippocampus with regard to emotions, that is, necessary for acquiring new emotional attributes (anterograde emotions), but not for retrieving old emotional attributes (retrograde emotions). Given the numerous lesion and functional neuroimaging studies illustrating the involvement of the amygdala in complex cognitive and behavioral functions, including "social cognition," we suggest that this involvement is a manifestation of a more fundamental function mediated by the amygdala, which is to couple stimuli/entities with their emotional attributes, that is, the processing of somatic states from primary inducers.
Article
Poor social judgment and decision-making abilities have often been attributed to people who have suffered injury to the ventromedial prefrontal cortex (VMPFC). However, few laboratory tests of decision-making have been conducted on these patients. The exception to this is the Iowa Gambling Task which has often, but not always, demonstrated differential performance between patients and controls. Results from patients with prefrontal cortex lesions on a novel test of decision-making are presented. Participants explored and chose from pairs of gambles that differed in their underlying distributions, primarily in the variance of their respective outcomes. In accordance with many findings from the behavioral decision-making literature, both young normal participants and older patient controls demonstrated a marked avoidance of risk and selected largely from secure, low variance gambles. In contrast, patients with ventromedial lesions were divided into two clear sub-groups. One group behaved similarly to normals, showing a risk-averse strategy. The other group displayed a distinctive risk-seeking behavior pattern, choosing predominantly from the high-variance, high-risk decks. This research demonstrates some of the advantages of using methods and theories from traditional decision-making research to study the behavior of patients, as well as the benefits of examining individual participants, and provides new insights into the nature of the decision-making deficit in patients with ventromedial prefrontal cortex lesions.
Article
The somatic marker hypothesis posits that deficits in emotional signalling (somatic states) lead to poor judgment in decision-making, especially in the personal and social realms. Similar to this hypothesis is the concept of emotional intelligence, which has been defined as an array of emotional and social abilities, competencies and skills that enable individuals to cope with daily demands and be more effective in their personal and social life. Patients with lesions to the ventromedial (VM) prefrontal cortex have defective somatic markers and tend to exercise poor judgment in decision-making, which is especially manifested in the disadvantageous choices they typically make in their personal lives and in the ways in which they relate with others. Furthermore, lesions to the amygdala or insular cortices, especially on the right side, also compromise somatic state activation and decision-making. This suggests that the VM, amygdala and insular regions are part of a neural system involved in somatic state activation and decision-making. We hypothesized that the severe impairment of these patients in real-life decision-making and an inability to cope effectively with environmental and social demands would be reflected in an abnormal level of emotional and social intelligence. Twelve patients with focal, stable bilateral lesions of the VM cortex or with right unilateral lesions of the amygdala or the right insular cortices, were tested on the Emotional Quotient Inventory (EQ-i), a standardized psychometric measure of various aspects of emotional and social intelligence. We also examined these patients with various other procedures designed to measure decision-making (the Gambling Task), social functioning, as well as personality changes and psychopathology; standardized neuropsychological tests were applied to assess their cognitive intelligence, executive functioning, perception and memory as well. Their results were compared with those of 11 patients with focal, stable lesions in structures outside the neural circuitry thought to mediate somatic state activation and decision-making. Only patients with lesions in the somatic marker circuitry revealed significantly low emotional intelligence and poor judgment in decision-making as well as disturbances in social functioning, in spite of normal levels of cognitive intelligence (IQ) and the absence of psychopathology based on DSM-IV criteria. The findings provide preliminary evidence suggesting that emotional and social intelligence is different from cognitive intelligence. We suggest, moreover, that the neural systems supporting somatic state activation and personal judgment in decision-making may overlap with critical components of a neural circuitry subserving emotional and social intelligence, independent of the neural system supporting cognitive intelligence.
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The paper examines the literature that attempts to resolve the equity premium and risk free rate puzzles. It demonstrates that the puzzles will confront any model of asset prices that relies on three crucial assumptions: preferences have a particular parametric form, asset markets are complete, and asset trade is frictionless. A survey of the literature that relaxes these assumptions reveals that there are now several plausible explanations of the seemingly low risk free rate, but the large size of the equity premium remains a puzzle.
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This paper explores the consequences of cognitive dissonance, coupled with time-inconsistent preferences, in an intertemporal decision problem with two distinct goals: acting decisively on early information (vision) and adjusting flexibly to late information (flexibility). The decision maker considered here is capable of manipulating information to serve her self-interests, but a tradeoff between distorted beliefs and distorted actions constrains the extent of information manipulation. Building on this tradeoff, the present model provides a unified framework to account for the conformity bias (excessive reliance on precedents) and the confirmatory bias (excessive attachment to initial perceptions).
The role of the amyg-dala in decision-making The amygdala in brain function: Basic and clinical approaches De-ciding advantageously before knowing the advantageous strategy
  • A Bechara
  • H Damasio
  • A Damasio
Bechara, A., Damasio, H., & Damasio, A. (2003). The role of the amyg-dala in decision-making. In P. Shinnick-Gallagher, A. Pitkanen, A. Shekhar, & L. Cahill (Eds.), The amygdala in brain function: Basic and clinical approaches (Annals of the New York Academy of Sciences Vol. 985, pp. 356–369). New York: New York Acad-emy of Sciences. Bechara, A., Damasio, H., Tranel, D., & Damasio, A.R. (1997). De-ciding advantageously before knowing the advantageous strategy. Science, 275, 1293–1295.