Stimulating the Dorsolateral Prefrontal Cortex Decreases the Asset Bubble: A tDCS Study

Xuejun Jin,Xue Zhou,Xiaolan Yang,Cheng Chen

doi:10.3389/fpsyg.2019.01031

Abstract

Many studies have discussed the neural basis of asset bubbles. They found that the dorsolateral prefrontal cortex (DLPFC) played an important role in bubble formation, but whether a causal relationship exists and the mechanism of the effect of the DLPFC on bubbles remains unsettled. Using transcranial direct current stimulation (tDCS), we modulated the activity of the DLPFC and investigated the causal relationship between the DLPFC and the asset bubble in the classical learning-to-forecast experiment. 126 subjects were randomly divided into three groups and received different stimulations (left anodal/right cathodal, right anodal/left cathodal, or sham stimulation), respectively. We also conducted a 2-back task before and after stimulation to measure changes in subjects’ cognitive abilities and explore in detail the cognitive mechanism of the effect of DLPFC stimulation on asset bubbles. Based on our results, we found that the bubble of the left anodal/right cathodal stimulation group was significantly smaller than that of the sham stimulation group. In the meantime, subjects performed significantly better in the 2-back task after left anodal/right cathodal stimulation but not right anodal/left cathodal or sham stimulation, which is consistent with their performance in the learning-to-forecast experiment, supporting the cognitive mechanism to some extent. Furthermore, we examined different forecasting rules across individuals and discovered that the left anodal/right cathodal stimulation group preferred the adaptive learning rule, while the sham and right anodal/left cathodal stimulation groups adopted a pure trend-following rule that tended to intensify market volatility aggressively.

Highlights

The research on asset bubbles can be traced back to the middle of the last century, but there are still many questions to be settled in this field
Markets consisting of subjects receiving left anodal/right cathodal stimulation had smaller bubbles than markets consisting of subjects receiving sham stimulation
We concluded that left anodal/right cathodal transcranial direct current stimulation (tDCS) over the dorsolateral prefrontal cortex (DLPFC) significantly reduced market bubbles, whereas right anodal/left cathodal or sham tDCS to the DLPFC had no significant effect on market bubbles

Summary

Introduction

The research on asset bubbles can be traced back to the middle of the last century, but there are still many questions to be settled in this field. Such studies have demonstrated through empirical data that the asset price often deviated from its fundamental price by discounting the expected value of future dividends and have defined this phenomenon as the asset bubble They tried to solve this problem through innovations of economic systems, but none has managed to eliminate bubbles completely (Chancellor, 1999). Many observed large positive bubbles followed by dramatic crashes toward the end of the experiment (Smith et al, 1988; Noussair et al, 2001; Haruvy and Noussair, 2006; Haruvy et al, 2014; Eckel and Fuüllbrunn, 2015) Among these laboratory experiments regarding asset bubbles, “learning-to-forecast” is a typical one introduced by Marimon et al (1993). In addition to the large deviation from the fundamental price frequently observed in other experiments, subjects without rational expectations were found to adopt a trend-following strategy during forecasting (Hommes et al, 2005), which tended to increase the volatility of the asset price and induce an asset bubble

Methods

Results

Conclusion