Pregledni rad
https://doi.org/10.32728/ric.2016.21/7
CAUSAL PEER EFFECTS IN FINANCIAL DECISION MAKING
Ana Njegovanović
Krešimir Petar Ćosić
Sažetak
The research paper connects three key elements from the study (conducted using neural database of experimental asset market that have tested the fundamental mechanisms that generate peer effect, the neural database was measured using functional magnetic resonance imaging (fMRI); Cary Frydman, 2015- University of Southern California-Marshall School of Business) relating to: experimental control in the laboratory of random peer assignment,; neural activity in testing new prediction explaining peer effect and neural activity in the conduct of trade. The methodology used in the research of peer effect relies on the theory of predicting error, the signal which measures changes in anticipation of the net present value which generates new information. Cognitive neuroscience shows that the prediction error is measured in a certain part of the brain known as the ventral striatum. Measuring the potential value gives insights to economists on which factors affecting the subjective utility.
Testing is constructed with 48 patients who were given $ 100 of experimental money and they were given the opportunity to invest in two separate assets in over two hundred experiments. The experiment showed that subjects converted their final portfolio from experimental currency to real dollars using the exchange rate of 5: 1. In addition to profits from the experiment, subjects were paid a fixed "show-up" fee of $ 20.
There are two difficulties in identifying causal peer effect in economic behavior (Minsk, 1993). Correlated behavior between two representatives may potentially be the engine by common shocks of the peer group or endogenous election in the peer group.
In addition to the prediction that deals with causal peer effect, there have been further developed predictions that generate different mechanisms of peer effects using neural database.
Focus on neural prediction is the neural activity that generates the moment when peers allocation investment is published, respectively the display of "peer decisions". This display is exclusively linked to the processing of information as opposed to considering solutions. This is significant because neuroscience is characterized by neural activity that generates new information in decision making.
Thus, neural prediction is determined by the ventral striatum, which predicts the occurrence of peer decisions. The large part of the literature in social psychology suggests that people have a direct need to follow others, especially manifested in situations where there is no objectively correct action, so the cause of intermediaries used peer action as a social anchor on which it bases its behavior.
Certain dialectical relationship between neuroscience and neurofinance determines a deeper understanding of financial decision making which leads to different results and different cognitive operations. Our thoughts, although abstract in form, determine procedures of certain neural circuits within our brain. The goal of neuroscience is uncovering these circuits and the possibility of deconstructing complex thought processes in individual components and determine how they integrate into our thought process. The results lead towards the understanding of decision making which shape our future and fate. The market implications, from the aspect of neurofinances, is vital in uncovering deeper knowledge about the effect of emotions and states such as attitudes towards risk, excessive trust, heuristic bias and gender, which finally results in financial decision making on an individual and institutional basis. The implications of fear and corruption in the financial industry can be explained through neurofinance and even give us more choices in the decision process. Social decisions demand an evaluation of costs and benefits for oneself and others. Connected with emotions and caution, the amygdala is involved in decision making and social interactions. The harm caused by the amygdala deteriorates social interaction, while the social neuropeptide oxytocin affects social decisions by changing the function of the amygdala in one aspect.
Empirical research, conducted on a sample of randomly selected subjects who were given identical information, shows that on the basis of the neural database gathered from experimental asset market for testing underlying mechanisms which generate peer effect (Cary Frydman, 2015).
Experimental evidence of peer effect in individual behavior of trade and neural data were used for testing of experimental mechanisms generating peer effect. Although the mechanisms which create peer effect in laboratory experiments don't suit the quantitative norm they can ensure settings for probing mechanisms using neural database. The methodology of neurofinance replicates the behavior of trade in laboratory conditions which are robustly found in the field.
Ključne riječi
Neuroscience; neurofinance; mechanisms that generate peer effect
Hrčak ID:
155715
URI
Datum izdavanja:
30.3.2016.
Posjeta: 3.342 *