Investors systematically deviate from rationality when making financial decisions, yet the mechanisms responsible for these deviations have not been identified. Using event-related fMRI, we examined whether anticipatory neural activity would predict optimal and suboptimal choices in a financial decision-making task. We characterized two types of deviations from the optimal investment strategy of a rational risk- neutral agent as risk-seeking mistakes and risk-aversion mistakes. Nucleus accumbens activation preceded risky choices as well as risk- seeking mistakes, while anterior insula activation preceded riskless choices as well as risk-aversion mistakes. These findings suggest that distinct neural circuits linked to anticipatory affect promote different types of financial choices, and indicate that excessive activation of these circuits may lead to investing mistakes. Thus, consideration of anticipatory neural mechanisms may add predictive power to the rational actor model of economic decision-making.

The Neural Basis of Financial Risk Taking

Ageing affects multiple aspects of brain structure and function, and therefore is likely to influence complex behaviours such as decision making Samanez-Larkin and Knutson describe age-related changes in the affective and motivational circuits that drive choice, and consider how these influence decision making

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Decision making in the ageing brain: changes in affective and motivational circuits

Older adults are disproportionately vulnerable to fraud, and federal agencies have speculated that excessive trust explains their greater vulnerability. Two studies, one behavioral and one using neuroimaging methodology, identified age differences in trust and their neural underpinnings. Older and younger adults rated faces high in trust cues similarly, but older adults perceived faces with cues to untrustworthiness to be significantly more trustworthy and approachable than younger adults. This age-related pattern was mirrored in neural activation to cues of trustworthiness. Whereas younger adults showed greater anterior insula activation to untrustworthy versus trustworthy faces, older adults showed muted activation of the anterior insula to untrustworthy faces. The insula has been shown to support interoceptive awareness that forms the basis of “gut feelings,” which represent expected risk and predict risk-avoidant behavior. Thus, a diminished “gut” response to cues of untrustworthiness may partially underlie older adults’ vulnerability to fraud.

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Neural and behavioral bases of age differences in perceptions of trust.

Recent research has demonstrated commonalities between remembering past events and imagining future events. Behavioral studies have revealed that remembering the past and imagining the future depend on shared cognitive processes, whereas neuropsychological and neuroimaging studies have shown that many of the same brain regions are involved in both remembering the past and imagining the future. Here, we review recent cognitive and neuroimaging studies that examine remembering the past and imagining the future in elderly adults. These studies document significant changes in elderly adults' capacities to imagine future events that are correlated with their memory deficits; most strikingly, older adults tend to remember the past and imagine the future with less episodic detail than younger adults. These findings are in line with the constructive episodic simulation hypothesis [Schacter and Addis: Phil Trans R Soc B 2007;362:773-786], which holds that past and future events draw on similar information and rely on similar underlying processes, and that episodic memory supports the construction of future events by extracting and recombining stored information into a simulation of a novel event. At the same time, however, recent data indicate that non-episodic factors also contribute to age-related changes in remembering the past and imagining the future. We conclude by considering a number of questions and challenges concerning the interpretation of age-related changes in remembering and imagining, as well as functional implications of this research for everyday concerns of older adults.

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Remembering the past and imagining the future in the elderly.

Episodic future thinking refers to mentally traveling forward in time to preexperience an event, and emerging research suggests that this is more difficult for older adults. The current study was designed to better understand the effect of aging on separate component processes of age differences in episodic future thinking. Young (n = 24) and older (n = 25) adults were asked to construct a) atemporal scenarios, b) future scenarios, and c) a narrative that involved navigation. Each of these conditions assesses the capacity to construct and describe a scene, but only the future scenario requires a subjective sense of self in time (autonoetic consciousness). The composite measure of performance showed that relative to young adults, older adults have substantially reduced capacity for all three types of construction, suggesting that age-related difficulty imagining future episodic events may reflect a more general cognitive decline with age. In addition, older adults were worse at imagining future experiences than atemporal experiences, indicating limited capacity for autonoetic consciousness. Further, this difference between imagining atemporal and future experiences was not as evident among younger adults. These deficits in episodic future thinking have implications for the daily lives of older adults in terms of anticipating and planning for the future.

Older adults have greater difficulty imagining future rather than atemporal experiences.

Financial planning decisionss are fundamentally affective in nature; they are decisions related to money, longevity and quality of life. Over the next several decades people will be increasingly responsible for managing their own assets and investments, and they will be subject to the affective influences on active, personal decision-making. Many of these crucial decisions are made and revised across the lifespan, including when to buy or sell a home, how to save for childrens’ education, how to manage healthcare costs, when to retire, how much to save for retirement and how to allocate retirement funds. As average life expectancy increases, many retirees will be faced with inadequate savings to live comfortably until the end of their lives. In the current article, we examine the problems of and potential solutions to inadequate financial planning through the lens of affective science, with an emphasis on how brain-based changes in affective processing with age might contribute to the challenge of financial planning.

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Older and wiser? An affective science perspective on age-related challenges in financial decision making

/pdf/social-security-and-the-stock-market-lessons-from-around-the-3ulwpzzhn5.pdf

Steven A. Sass

Papers

Older and wiser? An affective science perspective on age-related challenges in financial decision making

Social Security and the Stock Market: Lessons from Around the World