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Anticipatory affect and
 financial risk taking
       Brian Knutson
     Stanford University




     03.29.12: World Economic Forum Symposium, San Francisco CA
Questions


•   Which brain mechanisms anticipate good
    and bad events? (affective neuroscience)
•   Does their activity influence choice?
    (neuroeconomics)



        input                      output
Affective Circumplex

Negative             Arousal                  Positive
Arousal                                       Arousal
                      active

             tense               energetic



       unhappy                        happy   Valence


            tired                   calm

                      inactive




           Watson J, Clark LA, & Tellegen (1988) JPSP, 54, 1063-1070.
Olds J, Milner P (1954) J Comp Physiol Psychol, 47, 419-427.
“Reward” circuitry




    Haber SN, Knutson B (2010) Neuropsychopharm, 35, 4-26.
MEG & ERP     Functional MRI


                                        PET     Naturally
                                                Occurring
                                                 Lesions
              TMS



 Multi-Unit
 Recording


                Single-Cell Recording

                                                    deep
                                                seconds
                                              millimeters
Anticipatory Affect Model

• Neural targets
 – Gain anticipation: Nucleus accumbens (NAcc)
 – Loss anticipation: Anterior insula
 – Value integration: Medial prefrontal cortex (MPFC)




            Knutson B, Greer SM (2008). Phil Trans Royal Soc B, 363, 3771-3786.
Risk Taking Predictions

•   Risks involve uncertain but large gains and losses
•   NAcc activation promotes risk seeking
•   Anterior insula activation promotes risk avoidance
Behavioral Investment Allocation Strategy
               (BIAS) Task

• 20 blocks of 10 trials
• At block outset, one stock is randomly assigned as “good,”
  the other is “bad”
• Subjects know one stock is better, but don’t know which:

       Good stock:                       Bad stock:
       +$10 w/ prob. 50%                 +$10 w/ prob. 25%
       -$10 w/ prob. 25%                 -$10 w/ prob. 50%
        $0 w/ prob. 25%                   $0 w/ prob. 25%

                     Bond:
                     +$1 w/ prob. 100%


                           Kuhnen CM, Knutson B (2005) Neuron, 47, 763-770.
BIAS Task trial
Anticipatory activation predicts risk taking


• NAcc activity precedes risk seeking shift (bond to stock)
• Anterior insula activity precedes risk averse shift (stock
  to bond)
• Effects are strongest for “irrational” choices (mistakes)




                          Kuhnen CM, Knutson B (2005) Neuron, 47, 763-770.
Implications

• Beyond standard theories
  – Higher order moments (e.g., skewness)
  – Incidental affect
Skewness




Negative Skew        Symmetric                 Positive Skew




                Wu CC, Bossaerts P, Knutson B (2011) PLoS ONE, 6, e16838.
Skewness




Negative Skew    Symmetric   Positive Skew
Skewness




Negative Skew    Symmetric   Positive Skew
Incidental Affect

• Incidental affective cues can influence
  financial risk taking




  Knutson B, Wimmer GE, Kuhnen CM, Winkielman P (2008) NeuroReport, 19, 509-513.
Incidental Affect

• Partial mediation by brain activation.




  Knutson B, Wimmer GE, Kuhnen CM, Winkielman P (2008) NeuroReport, 19, 509-513.
Summary

• Neural activity related to anticipatory
  affect can be localized with FMRI
• Anticipatory activity in these circuits
  predicts financial risk taking
• Predictions extend beyond those made
  by standard theories (e.g., mean-variance)
Questions

• Can other circuits (e.g., habitual, symbolic,
  reflective) modulate or overshadow the
  influence of these affective circuits (and if
  so, when)?
• Do individual influences scale to the
  group level (and if so, when)?
Thanks

Camelia Kuhnen
Charlene Wu
Peter Bossaerts
Spanlab

National Institute of Health
FINRA Investor Education Fdn.

You
Schultz W, Dayan P, Montague PR (1997) Science, 275, 1593-1599.

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Anticipatory affect and financial risk taking - Brian Knutson

  • 1. Anticipatory affect and financial risk taking Brian Knutson Stanford University 03.29.12: World Economic Forum Symposium, San Francisco CA
  • 2.
  • 3.
  • 4.
  • 5. Questions • Which brain mechanisms anticipate good and bad events? (affective neuroscience) • Does their activity influence choice? (neuroeconomics) input output
  • 6. Affective Circumplex Negative Arousal Positive Arousal Arousal active tense energetic unhappy happy Valence tired calm inactive Watson J, Clark LA, & Tellegen (1988) JPSP, 54, 1063-1070.
  • 7.
  • 8. Olds J, Milner P (1954) J Comp Physiol Psychol, 47, 419-427.
  • 9. “Reward” circuitry Haber SN, Knutson B (2010) Neuropsychopharm, 35, 4-26.
  • 10. MEG & ERP Functional MRI PET Naturally Occurring Lesions TMS Multi-Unit Recording Single-Cell Recording deep seconds millimeters
  • 11. Anticipatory Affect Model • Neural targets – Gain anticipation: Nucleus accumbens (NAcc) – Loss anticipation: Anterior insula – Value integration: Medial prefrontal cortex (MPFC) Knutson B, Greer SM (2008). Phil Trans Royal Soc B, 363, 3771-3786.
  • 12. Risk Taking Predictions • Risks involve uncertain but large gains and losses • NAcc activation promotes risk seeking • Anterior insula activation promotes risk avoidance
  • 13. Behavioral Investment Allocation Strategy (BIAS) Task • 20 blocks of 10 trials • At block outset, one stock is randomly assigned as “good,” the other is “bad” • Subjects know one stock is better, but don’t know which: Good stock: Bad stock: +$10 w/ prob. 50% +$10 w/ prob. 25% -$10 w/ prob. 25% -$10 w/ prob. 50% $0 w/ prob. 25% $0 w/ prob. 25% Bond: +$1 w/ prob. 100% Kuhnen CM, Knutson B (2005) Neuron, 47, 763-770.
  • 14.
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  • 20. Anticipatory activation predicts risk taking • NAcc activity precedes risk seeking shift (bond to stock) • Anterior insula activity precedes risk averse shift (stock to bond) • Effects are strongest for “irrational” choices (mistakes) Kuhnen CM, Knutson B (2005) Neuron, 47, 763-770.
  • 21. Implications • Beyond standard theories – Higher order moments (e.g., skewness) – Incidental affect
  • 22. Skewness Negative Skew Symmetric Positive Skew Wu CC, Bossaerts P, Knutson B (2011) PLoS ONE, 6, e16838.
  • 23. Skewness Negative Skew Symmetric Positive Skew
  • 24. Skewness Negative Skew Symmetric Positive Skew
  • 25. Incidental Affect • Incidental affective cues can influence financial risk taking Knutson B, Wimmer GE, Kuhnen CM, Winkielman P (2008) NeuroReport, 19, 509-513.
  • 26. Incidental Affect • Partial mediation by brain activation. Knutson B, Wimmer GE, Kuhnen CM, Winkielman P (2008) NeuroReport, 19, 509-513.
  • 27. Summary • Neural activity related to anticipatory affect can be localized with FMRI • Anticipatory activity in these circuits predicts financial risk taking • Predictions extend beyond those made by standard theories (e.g., mean-variance)
  • 28. Questions • Can other circuits (e.g., habitual, symbolic, reflective) modulate or overshadow the influence of these affective circuits (and if so, when)? • Do individual influences scale to the group level (and if so, when)?
  • 29.
  • 30. Thanks Camelia Kuhnen Charlene Wu Peter Bossaerts Spanlab National Institute of Health FINRA Investor Education Fdn. You
  • 31.
  • 32. Schultz W, Dayan P, Montague PR (1997) Science, 275, 1593-1599.

Editor's Notes

  1. We know that market financial events can affect emotions, Not just in laypeople, but Even in “sophisticated” market players…
  2. In both positive
  3. And negative ways. We also suspect the opposite: that emotions can influence financial choice. But what is the scientific evidence for this?
  4. In fact, my laboratory addresses two questions about how brain mechanisms anticipate good and bad events (you will see that money is a particularly useful tool in this endeavor) and also whether anticipation of good and bad events as reflected by brain activity influences choice. My laboratory addresses two questions that are also central to two new hybrid fields. The first question – do different mechanisms in the brain anticipate good and bad events – is relevant to affective neuroscience, And the second – does their activity influence choice – is relevant to neuroeconomics. Pleas NOTE that even if we can answer these questions, their answers may or may not overlap.
  5. We believe that the overlapping circuits responsible lie deep in the brain, are evolutionarily served, and promote survival and procreation, In other words, they are affective.
  6. We have yet to identify the “smoking gun.” Today, I will argue that technology can help.
  7. If you want to look for emotional traits, you might want to aim at the subcortex. Why? That’s where many sites lie that animals will work very hard to stimulate or avoid getting stimulated.
  8. The regions that facilitate self-stimulation tend to lie along the ascending trajectory of midbrain neurons, particularly the ventral projections from the ventral tegmental area (or VTA) The same circuits support the same types of behavior in humans and monkeys. Problem for measurement: these circuits are partially subcortical, small, and fast. How can we measure their activity in humans?
  9. About 15 years ago, a new type of neuroimaging, functional magnetic resonance imaging, was introduced, which gave us adequate spatial and temporal resolution to look deep into the brain and ask what was happening before people made choices.
  10. FMRI, combined wi th monetary tasks, helped us identify brain regions which responded to antcipation of gain, loss, and integration of this information. The first two regions lie in areas of the brain that are deep and implicated in emotion. The model is related to risk as feelings and somatic marker models (but the signals need only come from the brain). But it adds value, as well as neural targets, which should allow us to predict which behavior comes next: Approach or avoidance.
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  16. Importantly, information is not enough. It must be integrated and it must be evaluable.
  17. Importantly, information is not enough. It must be integrated and it must be evaluable.
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