Relief from incidental fear evokes exuberant risk taking

Area of Science:

• Neuroeconomics
• Behavioral Economics
• Decision Science

Background:

• Incidental emotions, unrelated to a decision, have unclear impacts on financial risk-taking.
• Existing economic models do not account for incidental emotions' influence on decision-making.
• Understanding this influence is crucial given the prevalence of financial risk-taking.

Purpose of the Study:

• To investigate the impact of incidental fear on monetary risk-taking choices.
• To evaluate and adjust formal economic models (Expected Utility Theory, Prospect Theory, Mean-Variance) for incidental emotion effects.
• To explore the neural underpinnings of incidental emotion's influence on decision-making using fMRI.

Main Methods:

• Experimental induction of fear using electric shocks.
• Behavioral analysis of choices between sure and risky monetary options.
• Theoretical modeling and parameter estimation for economic models.
• Model-based functional magnetic resonance imaging (fMRI) analysis.

Main Results:

• Relief from fear significantly increased financial risk-taking, indicating potential exuberance.
• Prospect Theory, with adjusted outcome valuation, best explained the behavioral data.
• Increased activity in the ventromedial prefrontal cortex (vmPFC) correlated with this effect.

Conclusions:

• Incidental emotions, particularly fear relief, can substantially alter financial risk-taking behavior.
• Adjusted Prospect Theory provides a framework for understanding these effects.
• The vmPFC plays a key role in the neural valuation processes affected by incidental emotions.