Concepedia

Neurofinance

Ewa A. Miendlarzewska, Michael Kometer, Kerstin Preuschoff

Organizational Research Methods · 2017 · 41 citations · 110 references

TL;DR

Neurofinance is a nascent field that seeks to understand financial decision‑making by integrating insights from psychology, neuroscience, and finance. The paper introduces neurofinance, rooted in these disciplines, and aims to provide alternative explanations for classic finance theory failures through computational modeling. Neurofinance employs behavioral experiments to examine how emotions, biases, stress, and individual differences influence the evaluation of uncertain, time‑constrained, risky, and strategic financial options, studies brain processing of financial information, and incorporates computational models to explain classic finance theory failures. Early studies reveal insights into financial decision processes, and the review highlights implications while outlining open questions in neurofinance.

Abstract

Neurofinance is a relatively new area of research that strives to understand financial decision making by combining insights from psychology and neuroscience with theories of finance. Using behavioral experiments, neurofinance studies how we evaluate information about financial options that are uncertain, time-constrained, risky, and strategic in nature and how financial decisions are influenced by emotions, psychological biases, stress, and individual differences (such as gender, genes, neuroanatomy, and personality). In addition, it studies how the brain processes financial information and how individual decisions arise within it. Finally, by combining these experiments with computational models, neurofinance aims to provide an alternative explanation for the apparent failure of classic finance theories. Here we provide an introduction to neurofinance and look at how it is rooted in different fields of study. We review early findings and implications and conclude with open questions in neurofinance.