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Portfolio decisions and brain reactions via the CEAD method

Author

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  • Majer, Piotr
  • Mohr, Peter N. C.
  • Heekeren, Hauke R.
  • Härdle, Wolfgang Karl

Abstract

Decision making can be a complex process requiring the integration of several attributes of choice options. Understanding the neural processes underlying (uncertain) investment decisions is an important topic in neuroeconomics. We analyzed functional magnetic resonance imaging (fMRI) data from an investment decision (ID) study for ID-related effects. We propose a new technique for identifying activated brain regions: Cluster, Estimation, Activation and Decision (CEAD) method. Our analysis is focused on clusters of voxels rather than voxel units. Thus, we achieve a higher signal to noise ratio within the unit tested and a smaller number of hypothesis tests compared with the often used General Linear Model (GLM). We propose to first conduct the brain parcellation by applying spatially constrained NCUT spectral clustering. The information within each cluster can then be extracted by the flexible DSFM dimension reduction technique and finally be tested for differences in activation between conditions. This sequence of Cluster, Estimation, Activation and Decision admits a model-free analysis of the local BOLD signal. Applying a GLM on the DSFM-based time series resulted in a significant correlation between the risk of choice options and changes in fMRI signal in the anterior insula (aINS) and DMPFC. Additionally, individual differences in decision-related reactions within the DSFM time series predicted individual differences in risk attitudes as modeled with the framework of the mean-variance model.

Suggested Citation

  • Majer, Piotr & Mohr, Peter N. C. & Heekeren, Hauke R. & Härdle, Wolfgang Karl, 2014. "Portfolio decisions and brain reactions via the CEAD method," SFB 649 Discussion Papers 2014-036, Humboldt University Berlin, Collaborative Research Center 649: Economic Risk.
    • Handle: RePEc:zbw:sfb649:sfb649dp2014-036
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    References listed on IDEAS

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    1. Mohr, Peter N. C. & Biele, Guido & Heekeren, Hauke R., 2010. "Neural Processing of Risk," SFB 649 Discussion Papers 2010-065, Humboldt University Berlin, Collaborative Research Center 649: Economic Risk.
    2. Nikos K. Logothetis, 2008. "What we can do and what we cannot do with fMRI," Nature, Nature, vol. 453(7197), pages 869-878, June.
    3. Daniel Kahneman & Amos Tversky, 2013. "Prospect Theory: An Analysis of Decision Under Risk," World Scientific Book Chapters, in: Leonard C MacLean & William T Ziemba (ed.), HANDBOOK OF THE FUNDAMENTALS OF FINANCIAL DECISION MAKING Part I, chapter 6, pages 99-127, World Scientific Publishing Co. Pte. Ltd..
    4. Colin F. Camerer, 2007. "Neuroeconomics: Using Neuroscience to Make Economic Predictions," Economic Journal, Royal Economic Society, vol. 117(519), pages 26-42, March.
    5. Harry Markowitz, 1952. "Portfolio Selection," Journal of Finance, American Finance Association, vol. 7(1), pages 77-91, March.
    6. Mohr, Peter N. C. & Heekeren, Hauke R. & Li, Shu-Chen, 2010. "Variability in brain activity as an individual difference measure in neuroscience?," SFB 649 Discussion Papers 2010-064, Humboldt University Berlin, Collaborative Research Center 649: Economic Risk.
    7. Colin F. Camerer, 2013. "Goals, Methods, and Progress in Neuroeconomics," Annual Review of Economics, Annual Reviews, vol. 5(1), pages 425-455, May.
    8. Elke U. Weber & Richard A. Milliman, 1997. "Perceived Risk Attitudes: Relating Risk Perception to Risky Choice," Management Science, INFORMS, vol. 43(2), pages 123-144, February.
    9. Park, Byeong U. & Mammen, Enno & Härdle, Wolfgang & Borak, Szymon, 2009. "Time Series Modelling With Semiparametric Factor Dynamics," Journal of the American Statistical Association, American Statistical Association, vol. 104(485), pages 284-298.
    10. Alena Bömmel & Song Song & Piotr Majer & Peter Mohr & Hauke Heekeren & Wolfgang Härdle, 2014. "Risk Patterns and Correlated Brain Activities. Multidimensional Statistical Analysis of fMRI Data in Economic Decision Making Study," Psychometrika, Springer;The Psychometric Society, vol. 79(3), pages 489-514, July.
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    Cited by:

    1. Grith, Maria & Härdle, Wolfgang Karl & Kneip, Alois & Wagner, Heiko, 2016. "Functional principal component analysis for derivatives of multivariate curves," SFB 649 Discussion Papers 2016-033, Humboldt University Berlin, Collaborative Research Center 649: Economic Risk.
    2. Morawetz, Carmen & Mohr, Peter N. C. & Heekeren, Hauke R. & Bode, Stefan, 2019. "The effect of emotion regulation on risk-taking and decision-related activity in prefrontal cortex," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 14(10), pages 1109-1118.
    3. Tran, Ngoc M. & Burdejová, Petra & Ospienko, Maria & Härdle, Wolfgang K., 2019. "Principal component analysis in an asymmetric norm," Journal of Multivariate Analysis, Elsevier, vol. 171(C), pages 1-21.
    4. repec:hum:wpaper:sfb649dp2015-022 is not listed on IDEAS
    5. repec:hum:wpaper:sfb649dp2016-040 is not listed on IDEAS
    6. repec:hum:wpaper:sfb649dp2016-033 is not listed on IDEAS
    7. Chao, Shih-Kang & Härdle, Wolfgang K. & Huang, Chen, 2018. "Multivariate factorizable expectile regression with application to fMRI data," Computational Statistics & Data Analysis, Elsevier, vol. 121(C), pages 1-19.
    8. Chen, Ying & Härdle, Wolfgang Karl & Qiang, He & Majer, Piotr, 2015. "Risk related brain regions detected with 3D image FPCA," SFB 649 Discussion Papers 2015-022, Humboldt University Berlin, Collaborative Research Center 649: Economic Risk.
    9. repec:hum:wpaper:sfb649dp2016-058 is not listed on IDEAS
    10. Chao, Shih-Kang & Härdle, Wolfgang Karl & Huang, Chen, 2016. "Multivariate factorisable sparse asymmetric least squares regression," SFB 649 Discussion Papers 2016-058, Humboldt University Berlin, Collaborative Research Center 649: Economic Risk.
    11. Tran, Ngoc Mai & Osipenko, Maria & Härdle, Wolfgang Karl, 2014. "Principal component analysis in an asymmetric norm," SFB 649 Discussion Papers 2014-001, Humboldt University Berlin, Collaborative Research Center 649: Economic Risk.

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    More about this item

    Keywords

    risk; risk attitude; fMRI; decision making; neuroeconomics; semiparametric model; factor structure; brain imaging; spatial clustering; inference on clusters; CEAD method;
    All these keywords.

    JEL classification:

    • C3 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables
    • C6 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling
    • C9 - Mathematical and Quantitative Methods - - Design of Experiments
    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty

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