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Neuralbasisofthedifferencein

financialdecisionmakingbetween

retailandins8tu8onalinvestors

TimJausovec

05/28/2013

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Background

fMRIstudiesfocusonfinancialDMinretailinvestors(Kuhnen&Knutson,2005)

However,robustbehavioraldifferencesbetween

retailv.instuonal: Lossrealizaon(Frydmanetal.,2011;Barber&

Odean,2011)

Riskpreferences&poroliodiversificaon

(Danieletal.,2002;Eriksen&Kvaley,2009) Herdingbehaviour(Barberetal.,2009)

Underperformmarket(Barber&Odean,2000)

...Background

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Hypothesis

Severalhypothesiswhy...

Disposioneffect(Frydmanetal.,2010;Barber

etal.,2011)

Strategyvchoice(Venkatramanetal.,2007) Emoonalregulaon(Sokol-Hessneretal.,2009)

...makeprediconsthataretestable(only)through

fMRI

3Hypothesis

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4

Anticipation Choice Wait

Market Hold or Sell Outcome

Sell

Hold

Sell?

Methods

UndergoamodifiedversionofBehavioral

InvestmentAllocaGonTaskinthemagnet

Methods

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Methods

Experiment1:

IV:Stockreturns,

porNolio

DV:Influenceonbrain

acGvaGon&behavior

Experiment2:

IV:BrainacGvaGon,

behavior

DV:Investortype

Methods

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BehavioralResults(projected)

InsGtuGonalinvestorsrelaGvetoretail:

MiGgaGonoflossrealizaGon

Makelessmistakesoverall ParGcularly,lessrisk-aversionmistakes

Possiblymorerisk-seeking

Results

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euralResults(projected)

ROIs: PFC(vm,dlandm),Insula,Acc,PPC

PredicGons(basedonFrydmanetal.,2010):

Insula&AcchavedifferentGmings:Retail:LossrealizaGonduringoutcome

InsGtuGonal:LossrealizaGonduringmarket

dlPFCacGvatedininsGtuGonalbutnotretail vmPFCstableacrosscondiGons

Results

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Discussion

Lossaversion

Behavioral+brainacGvaGonGming

EmoGonalmiGgaGon brainacGvaGonmagnitude+Gming

Strategyv.choice Hardtoteaseapart,possibleconfound(evenin

Kuhnen&Knutson,2005)

Discussion

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ImplicaGons Thesefindingshavethefollowingimplicaonsfor

theory:

FirstfMRIstudyofeffectofinvestortypeonloss

realiza8oneffectsandpredictorypowerofbrain

ac8va8ononinvestortype

ShowstheimportanceoffMRI(asaproxytoNAcc,Insula

&PFCac8va8on)infinancialDMtogetatbehaviorally

hiddenDMvariables

andpracce: X%ofGDPlostduetomisalloca8onoffunds(Daniel,

2001)->understandingmechanism->mi8ga8ngdamage

Supportforprotec8ngretailinvestors

Implication

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TobeconGnued...

Sll,anumberofquesonsremaintoberesolved...

Predicnggoodvs.badinvestors

Strategyv.choiceasaconfound

Differencebetweeninvestortypes Effectsoverme

Naturev.nurture

10Future

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References

Barber&Odean,(2000).TheJournalofFinance,55(2),p.773-06.

Barberetal.,(2009).TheReviewofFinancialStudies,22(1),p.?.

Barber&Odean,(2011).Workingpaper.http://ssrn.com/abstract=1872211

Danieletal.,(2001).JournalofMonetaryEconomics,49,p.139-209.

Eriksen&Kvaloy,(2009).FinancMarkManag,24,p.159-170.

Frydmanetal.,(2011).Workingpaper.www.haas.berkeley.edu/groups/finance/ru_july11.pdf

Kuhnen&Knutson,(2005).Neuron,47,p.763-770.

Sokol-Hessneretal.,(2009).PNAS,106(130),p.5035-5040.

Venkatramanetal.,(2009).Neuron,62(4),p.593-602.

References

http://www.haas.berkeley.edu/groups/finance/ru_july11.pdfhttp://www.haas.berkeley.edu/groups/finance/ru_july11.pdfhttp://www.haas.berkeley.edu/groups/finance/ru_july11.pdf

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QuesGons?

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Frydmanetal.,(2011)

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Frydmanetal.,(2011)

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Venkatramanetal.(2011)

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Outcome

Choice

Self Other

Self

Retail investors

(Kuhnen & Knutson,

2005*)

GP (Nicolle et al.,

2012; Leonhardt,

2011)

Other LP (James, 2012*) /

Contextmaers

* Indicates study of financial choice

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fMRImighthelp

otclearifforbeerorworse

Endowmenteffectdecrease(List,2009)

Myopiclossaversionincreases(Eriksen&Kvaley,

2009) Whatmechanism?

Prospecttheory(Daniel,2001)

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