The Neural Basis of Financial Risk Taking
Open accessAbstract
Investors systematically deviate from rationality when making financial decisions, yet the mechanisms responsible for these deviations have not been identified. Using event-related fMRI, we examined whether anticipatory neural activity would predict optimal and suboptimal choices in a financial decision-making task. We characterized two types of deviations from the optimal investment strategy of a rational risk-neutral agent as risk-seeking mistakes and risk-aversion mistakes. Nucleus accumbens activation preceded risky choices as well as risk-seeking mistakes, while anterior insula activation preceded riskless choices as well as risk-aversion mistakes. These findings suggest that distinct neural circuits linked to anticipatory affect promote different types of financial choices and indicate that excessive activation of these circuits may lead to investing mistakes. Thus, consideration of anticipatory neural mechanisms may add predictive power to the rational actor model of economic decision making.
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Neuroimaging studies show that these systems contribute to decision-making interactively, with impulsive or risky choices often coinciding with increased engagement of incentive processing regions and decreased involvement of cognitive control activity.
“Neuroimaging studies conducted in both adult and adolescent populations show that these systems contribute to decision-making in an interactive fashion, with impulsive or risky choices often coinciding with the increased engagement of incentive processing regions”
From Peers increase adolescent risk taking by enhancing activity in the brain’s reward circuitry (2011) · cites this paper as Kuhnen & Knutson, 2005
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Experimental — accuracy not yet measuredAnterior insula activity is associated with risk-free choices and during risk-aversion mistakes.
“Anterior insula activity has been associated with risk-free choices, and during risk-aversion mistakes (when an individual chooses not to take a risky decision, when it would have been advantageous) (Kuhnen and Knutson, 2005)”
From Atypical interoception as a common risk factor for psychopathology: A review (2021) · cites this paper as Kuhnen and Knutson, 2005
Risk taking is associated with an increase in accumbens activity that is exaggerated in adolescents, relative to both children and adults.
“In contrast, risk taking is associated with an increase in accumbens activity (Kuhnen & Knutson 2005; Matthews et al. 2004; Montague & Berns 2002) that is exaggerated in adolescents, relative to both children and adults (Ernst et al. 2005; Galvan et al. 2006).”
From <i>The Adolescent Brain</i> (2008) · cites this paper as Kuhnen & Knutson 2005
fMRI studies have shown limbic subcortical activity positively correlates with suboptimal choice behaviors.
“Further, fMRI studies have shown limbic subcortical activity positively correlates with suboptimal choice behaviors (Kuhnen & Knutson 2005).”
From <i>The Adolescent Brain</i> (2008) · cites this paper as Kuhnen & Knutson 2005
A number of studies have shown increases in activity in the nucleus accumbens immediately prior to making risky choices on monetary-risk paradigms.
“A number of studies have shown increases in activity in the nucleus accumbens immediately prior to making risky choices on monetary-risk paradigms (Kuhnen & Knutson 2005; Matthews et al. 2004; Montague & Berns 2002)”
From <i>The Adolescent Brain</i> (2008) · cites this paper as Kuhnen & Knutson 2005
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- Authors
- Kuhnen, C. M., & Knutson, B.
- Affiliations
- Stanford University (US)
- Corresponding author
- Kuhnen, Camelia M.
- Knutson, Brian
- Venue
- Neuron
- Publisher
- Elsevier BV
- Published
- 2005-09
- Volume
- 47
- Issue
- 5
- Pages
- 763-770
- ISSN
- 0896-6273 (ISSN-L)
- OpenAlex
- W1585858727
- Cited by
- 1,182
- References
- 36
- Citations by year
- 2026: 27 · 2025: 40 · 2024: 56 · 2023: 38 · 2022: 46 · 2021: 41 · 2020: 51 · 2019: 40 · 2018: 75 · 2017: 55 · 2016: 72 · 2015: 69 · 2014: 78 · 2013: 79 · 2012: 75
- FWCI
- 34.27
- Type
- journal article
- Language
- en
- Open access
- bronze
- doi.org
- Licence
- www.elsevier.com/tdm/userlicense/1.0/ (tdm)
- www.elsevier.com/legal/tdmrep-license (tdm)
- www.elsevier.com/open-access/userlicense/1.0/ (vor, 2876 d)
- doi.org/10.15223/policy-017 (stm-asf)
- doi.org/10.15223/policy-037 (stm-asf)
- doi.org/10.15223/policy-012 (stm-asf)
- doi.org/10.15223/policy-029 (stm-asf)
- doi.org/10.15223/policy-004 (stm-asf)
- Locations
- Neuron (publishedVersion)
- PubMed (publishedVersion)
- RePEc: Research Papers in Economics (submittedVersion)
- SSRN Electronic Journal (submittedVersion)
- Neuron
- Funders
- National Alliance for Research on Schizophrenia and Depression
- National Institute on Aging (AG024957-02)
- Topics
- Social Sciences › Decision Sciences › General Decision Sciences › Decision-Making and Behavioral Economics
- Life Sciences › Neuroscience › Cognitive Neuroscience › Neural and Behavioral Psychology Studies
- Social Sciences › Safety Research › Experimental Behavioral Economics Studies
- Keywords
- financial risk-taking, financial decision-making, risk seeking, risk aversion, nucleus accumbens, anterior insula, investment mistakes, rational actor model
- MeSH terms
- Adult, Choice Behavior, Economics, Female, Humans, Image Interpretation, Computer-Assisted, Individuality, Magnetic Resonance Imaging, Male, Nerve Net, Nucleus Accumbens, Risk-Taking, Logistic Models, Prefrontal Cortex
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