Asymmetric valuation and belief updating over gain and loss in risky decision making: A behavioral and electrophysiological investigation

Abstract

Decisions under risk, either for gain or loss, are ubiquitous in our daily life. However, the extent to which the valence (gain or loss) of risky financial choices shapes outcome valuation and belief updating is a relatively overlooked research area. In the current study, we image neural activity using electroencephalography (EEG) combined with a financial decision task to investigate outcome valuation and belief updating. In the experimental task, subjects can either choose to take the risky gamble (stock) or the safe option (bond) and then report their belief over the quality of stock option in a trial-by-trial manner. Although the actual probabilities of the risky option are symmetric over gain and loss, we found an asymmetric effect of belief updating and risk preference, viz. the subjects tend to both report a higher probability for the stock to win and be more risk taking for potential gains compared to symmetric losses. The EEG data following feedback of stock payoff represents a parallel pattern which is resonant with the behavioral results. Notably, there is generally a greater FRN difference for feedback (correct vs. incorrect) in the gain condition compared to the loss condition, and the deflection of P300 is more prominent in gain condition than loss condition irrespective of the correctness. Lastly, while the P300 could be predictive for the subsequent probability estimate in both conditions (gain and loss), the FRN is only predictive for belief updating in the gain rather than loss condition. Therefore, both the behavioral and electrophysiological findings indicate an unbalanced processing of valence in shaping decisions under risk within financial learning in an experiential framework.