Abstract
Background: While financial decision making has been barely explored, no study has previously investigated the neural correlates of individual decisions made by professional traders involved in real stock market negotiations, using their own financial resources.Aim: We sought to detect how different brain areas are modulated by factors like age, expertise, psychological profile (speculative risk seeking or aversion) and, eventually, size and type (Buy/Sell) of stock negotiations, made through Direct Access Trading (DAT) platforms.Subjects and methods: Twenty male traders underwent fMRI while negotiating in the Italian stock market using their own preferred trading platform.Results: At least 20 decision events were collected during each fMRI session. Risk averse traders performed a lower number of financial transactions with respect to risk seekers, with a lower average economic value, but with a higher rate of filled proposals. Activations were observed in cortical and subcortical areas traditionally involved in decision processes, including the ventrolateral and dorsolateral prefrontal cortex (vlPFC, dlPFC), the posterior parietal cortex (PPC), the nucleus accumbens (NAcc), and dorsal striatum. Regression analysis indicated an important role of age in modulating activation of left NAcc, while traders' expertise was negatively related to activation of vlPFC. High value transactions were associated with a stronger activation of the right PPC when subjects' buy rather than sell. The success of the trading activity, based on a large number of filled transactions, was related with higher activation of vlPFC and dlPFC. Independent of chronological and professional age, traders differed in their attitude to DAT, with distinct brain activity profiles being detectable during fMRI sessions. Those subjects who described themselves as very self-confident, showed a lower or absent activation of both the caudate nucleus and the dlPFC, while more reflexive traders showed greater activation of areas involved in strategic decision making.Discussion: The neural correlates in DAT are similar to those observed in other decision making contexts. Trading is handled as a well-learned automatic behavior by expert traders; for those who mostly rely on heuristics, cognitive effort decreases, and transaction speed increases, but decision efficiency lowers following a poor involvement of the dlPFC.
Highlights
According to the Efficient Market Theory (EMT), stock market prices should reflect the influence of all available information at a given time
Results were thresholded at P < 0.05 family wise error (FWE) corrected at the cluster or voxel level as appropriate
To explore activations as a function of the demographic and professional variables associated with our sample subjects, as well as a function of the traders’ behavior during the online trading activity, we further plotted the signal change in specific regions of interest (ROIs)
Summary
According to the Efficient Market Theory (EMT), stock market prices should reflect the influence of all available information at a given time. Lo and Repin (2002) recorded physiological data to link emotions and decision making in traders They found that deviations of price, spread, and return, and trend reversal of price and spread, elicited skin conductance responses and abrupted variations in body temperature, while the volatility in share prices was related with blood volume pulses; they collected a higher number of physiological responses among less experienced traders. Coates and Herbert (2008) analyzed saliva’s sample of 17 traders for 8 days to explore the link between testosterone and cortisol levels with financial returns and financial uncertainty, respectively Their findings revealed the ability of morning testosterone to predict traders’ profitability while the increase in cortisol was associated to market volatility and trading results variability. While financial decision making has been barely explored, no study has previously investigated the neural correlates of individual decisions made by professional traders involved in real stock market negotiations, using their own financial resources
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