The neuroscience of investing: fMRI of the reward system

Abstract

Functional magnetic resonance imaging (fMRI) has proven a useful tool for observing neural BOLD signal changes during complex cognitive and emotional tasks. Yet the meaning and applicability of the fMRI data being gathered is still largely unknown. The brain's reward system underlies the fundamental neural processes of goal evaluation, preference formation, positive motivation, and choice behavior. fMRI technology allows researchers to dynamically visualize reward system processes. Experimenters can then correlate reward system BOLD activations with experimental behavior from carefully controlled experiments. In the SPAN lab at Stanford University, directed by Brian Knutson Ph.D., researchers have been using financial tasks during fMRI scanning to correlate emotion, behavior, and cognition with the reward system's fundamental neural activations. One goal of the SPAN lab is the development of predictive models of behavior. In this paper we extrapolate our fMRI results toward understanding and predicting individual behavior in the uncertain and high-risk environment of the financial markets. The financial market price anomalies of “value versus glamour” and “momentum” may be real-world examples of reward system activation biasing collective behavior. On the individual level, the investor's bias of overconfidence may similarly be related to reward system activation. We attempt to understand selected “irrational” investor behaviors and anomalous financial market price patterns through correlations with findings from fMRI research of the reward system.