Using Neural Data to Test a Theory of Investor Behavior: An Application to Realization Utility. (April 2014)

• Record Type: Journal Article
• Authors: FRYDMAN, CARY; BARBERIS, NICHOLAS; CAMERER, COLIN; BOSSAERTS, PETER; RANGEL, ANTONIO
• Is Part Of: Journal of finance. Volume 69:Number 2(2014:Apr.)
• Page Start: 907
• Page End: 946
• Publication Date: 2014-04
• Subjects: Finance -- Periodicals; Finance -- United States -- Periodicals; 332.05
• DOI: 10.1111/jofi.12126
• Languages: English
• ISSNs: 0022-1082

Abstract

<abstract abstract-type="main"> <title>ABSTRACT</title> <p>We conduct a study in which subjects trade stocks in an experimental market while we measure their brain activity using functional magnetic resonance imaging. All of the subjects trade in a suboptimal way. We use the neural data to test a "realization utility" explanation for their behavior. We find that activity in two areas of the brain that are important for economic decision‐making exhibit activity consistent with the predictions of realization utility. These results provide support for the realization utility model. More generally, they demonstrate that neural data can be helpful in testing models of investor behavior.</p> </abstract>