The role of fear in home-biased decision making: first insights from neuroeconomics

Peter H. Kenning, Peter N.C. Mohr (), Susanne Erk, Henrik Walter and Hilke Plassmann ()

MPRA Paper from University Library of Munich, Germany

Abstract: We used functional magnetic resonance imaging (“fMRI”) to investigate the neural mechanisms underlying home–biased, financial decision-making. Twenty-eight subjects were instructed to make binary investment decisions between a foreign and a domestic mutual fund. Differential brain activity was detected between decisions involving funds of different national origins. In situations where participants had to decide between mutual funds from different countries, we found increased activity in the precentral gyrus, the fusiform gyrus and the inferior occipital gyrus. Moreover, during home-biased decisions we found a correlation between activity within the amygdala- hippocampal regions of the brain and the investor’s general risk aversion. This region has been found to be involved in negative emotional processing such as fear, so one interpretation is that home-biased financial decision making is modulated by negative emotions associated with risk aversion.

Keywords: Financial Decision-Making; Home-Bias; fMRI; Neuroeconomics (search for similar items in EconPapers)
JEL-codes: F30 G00 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-neu
Date: 2006-08-01, Revised 2006-11-18
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