The Effect of Wealth Shocks on Loss Aversion: Behavior and Neural Correlates
AffiliationUniv Arizona, Econ Sci Lab, Eller Coll Management
Keywordsneural loss aversion
ventral prefrontal cortex
MetadataShow full item record
PublisherFRONTIERS MEDIA SA
CitationThe Effect of Wealth Shocks on Loss Aversion: Behavior and Neural Correlates 2017, 11 Frontiers in Neuroscience
JournalFrontiers in Neuroscience
Rights© 2017 Pammi, Ruiz, Lee, Noussair and Sitaram. This is an open-access article distributed under the terms of the Creative Commons Attribution License (CC BY).
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AbstractKahneman and Tversky (1979) first demonstrated that when individuals decide whether or not to accept a gamble, potential losses receive more weight than possible gains in the decision. This phenomenon is referred to as loss aversion. We investigated how loss aversion in risky financial decisions is influenced by sudden changes to wealth, employing both behavioral and neurobiological measures. We implemented an fMRI experimental paradigm, based on that employed by Tom et al. (2007). There are two treatments, called RANDOM and CONTINGENT. In RANDOM, the baseline setting, the changes to wealth, referred to as wealth shocks in economics, are independent of the actual choices participants make. Under CONTINGENT, we induce the belief that the changes in income are a consequence of subjects' own decisions. The magnitudes and sequence of the shocks to wealth are identical between the CONTINGENT and RANDOM treatments. We investigated whether more loss aversion existed in one treatment than another. The behavioral results showed significantly greater loss aversion in CONTINGENT compared to RANDOM after a negative wealth shock. No differences were observed in the response to positive shocks. The fMRI results revealed a neural loss aversion network, comprising the bilateral striatum, amygdala and dorsal anterior cingulate cortex that was common to the CONTINGENT and RANDOM tasks. However, the ventral prefrontal cortex, primary somatosensory cortex and superior occipital cortex, showed greater activation in response to a negative change in wealth due to individual's own decisions than when the change was exogenous. These results indicate that striatum activation correlates with loss aversion independently of the source of the shock, and that the ventral prefrontal cortex (vPFC) codes the experimental manipulation of agency in one's actions influencing loss aversion.
VersionFinal published version
SponsorsUniversity Grants Commission (UGC), Government of India, Centre of Excellence Grant; Comision Nacional de Investigacion Cientifica y Tecnologica de Chile (Conicyt) through Fondo Nacional de Desarrollo Cientifico y Tecnologico, Fondecyt Regular [1171313, 1171320]; BMBF [01DQ13004]; Proyectos de Investigacion Interdisciplinaria, Vicerrectoria de Investigacion (VRI), Pontificia Universidad Catolica de Chile [15/2013]; CONICYT-PCHA/Magister Nacional [2014-22140196]; CONICYT-PIA Anillo [ACT1416, ACT1414]