Brain Function Links To Winning And Losing Traders

Traders in experimental markets can be winners or losers or in-between—neutral. This, we would expect. But according to a recent study, there is something more thought-provoking. Now, the category traders fall into can be linked with brain function. We are truly in the future.
 
Colin Camerer from the California Institute of Technology in Pasadena, CA, along with colleagues from his own institution and others from the Virginia Tech Carillon Research Institute in Roanoke, VA, examined the correlation between neural responses and financial behavior. The Welcome Trust Centre for Neuroimaging, University College London in London also participated.
 
Their paper, “Irrational exuberance and neural crash warning signals during endogenous experimental market bubbles,” published in the Proceedings of the National Academy of Science heralds back to Alan Greenberg, former chief executive officer of Bear Stearns, who oversaw the collapse of the company during the recent financial crisis.
 
In a nutshell, functional magnetic resonance imaging (fMRI) was performed in subjects that traded in 16 different sessions. fMRI is a representation of brain activity in real time. For each test, there were about 20 participants. The results revealed that the high earners sold into a rising market while low earners kept buying.
 

Sagittal MRI slice with the anterior cingulate cortex indicated in yellow. From Wikipedia.com.

At the same time, the nucleus accumbens, known as the pleasure center, was stimulated in both groups. There was a difference in the activity of the right insular cortex in the high and low earners. This structure is linked functionally to financial uncertainty and risk aversion from previous studies.

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