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Expert Financial Advice Neurobiologically “Offloads” Financial Decision-Making under Risk

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  • Jan B Engelmann
  • C Monica Capra
  • Charles Noussair
  • Gregory S Berns

Abstract

Background: Financial advice from experts is commonly sought during times of uncertainty. While the field of neuroeconomics has made considerable progress in understanding the neurobiological basis of risky decision-making, the neural mechanisms through which external information, such as advice, is integrated during decision-making are poorly understood. In the current experiment, we investigated the neurobiological basis of the influence of expert advice on financial decisions under risk. Methodology/Principal Findings: While undergoing fMRI scanning, participants made a series of financial choices between a certain payment and a lottery. Choices were made in two conditions: 1) advice from a financial expert about which choice to make was displayed (MES condition); and 2) no advice was displayed (NOM condition). Behavioral results showed a significant effect of expert advice. Specifically, probability weighting functions changed in the direction of the expert's advice. This was paralleled by neural activation patterns. Brain activations showing significant correlations with valuation (parametric modulation by value of lottery/sure win) were obtained in the absence of the expert's advice (NOM) in intraparietal sulcus, posterior cingulate cortex, cuneus, precuneus, inferior frontal gyrus and middle temporal gyrus. Notably, no significant correlations with value were obtained in the presence of advice (MES). These findings were corroborated by region of interest analyses. Neural equivalents of probability weighting functions showed significant flattening in the MES compared to the NOM condition in regions associated with probability weighting, including anterior cingulate cortex, dorsolateral PFC, thalamus, medial occipital gyrus and anterior insula. Finally, during the MES condition, significant activations in temporoparietal junction and medial PFC were obtained. Conclusions/Significance: These results support the hypothesis that one effect of expert advice is to “offload” the calculation of value of decision options from the individual's brain.

Suggested Citation

  • Jan B Engelmann & C Monica Capra & Charles Noussair & Gregory S Berns, 2009. "Expert Financial Advice Neurobiologically “Offloads” Financial Decision-Making under Risk," PLOS ONE, Public Library of Science, vol. 4(3), pages 1-14, March.
    • Handle: RePEc:plo:pone00:0004957
    DOI: 10.1371/journal.pone.0004957
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    Cited by:

    1. Dorow, Anderson & da Costa, Newton & Takase, Emilio & Prates, Wlademir & Da Silva, Sergio, 2018. "On the neural substrates of the disposition effect and return performance," Journal of Behavioral and Experimental Finance, Elsevier, vol. 17(C), pages 16-21.
    2. Jonathan E. Alevy & Michael K. Price, 2012. "Advice and Fictive Learning: The Pricing of Assets in the Laboratory," Working Papers 2012-07, University of Alaska Anchorage, Department of Economics.
    3. Damon Tomlin & Andrea Nedic & Deborah A Prentice & Philip Holmes & Jonathan D Cohen, 2013. "The Neural Substrates of Social Influence on Decision Making," PLOS ONE, Public Library of Science, vol. 8(1), pages 1-11, January.
    4. Jonathan E. Alevy & Michael K. Price, 2017. "Advice in the marketplace: a laboratory study," Experimental Economics, Springer;Economic Science Association, vol. 20(1), pages 156-180, March.
    5. Rai, Suyash & Ananth, Bindu & Mor, Nachiket, 2010. "Universalizing Complete Access to Finance: Key Conceptual Issues," ADBI Working Papers 256, Asian Development Bank Institute.
    6. Sprenger, Julia, 2016. "Naïve advice in financial decision making: Hidden costs of a free offer," Ruhr Economic Papers 656, RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen.
    7. Martin G. Kocher & Julius Pahlke & Stefan T. Trautmann, 2013. "Tempus Fugit : Time Pressure in Risky Decisions," Management Science, INFORMS, vol. 59(10), pages 2380-2391, October.
    8. Mario Gutiérrez-Roig & Carlota Segura & Jordi Duch & Josep Perelló, 2016. "Market Imitation and Win-Stay Lose-Shift Strategies Emerge as Unintended Patterns in Market Direction Guesses," PLOS ONE, Public Library of Science, vol. 11(8), pages 1-19, August.
    9. Victoria Y M Suen & Matthew R G Brown & Randall K Morck & Peter H Silverstone, 2014. "Regional Brain Changes Occurring during Disobedience to “Experts” in Financial Decision-Making," PLOS ONE, Public Library of Science, vol. 9(1), pages 1-10, January.
    10. Zak, Paul J., 2011. "The physiology of moral sentiments," Journal of Economic Behavior & Organization, Elsevier, vol. 77(1), pages 53-65, January.
    11. Dorow, Anderson & Da Costa Jr, Newton & Takase, Emilio & Prates, Wlademir & Da Silva, Sergio, 2017. "On the neural substrates of the disposition effect and return performance," MPRA Paper 83354, University Library of Munich, Germany.
    12. Liu, Bofan & Lu, Bin, 2023. "Can financial literacy be a substitute for financial advisers? Evidence from China," Pacific-Basin Finance Journal, Elsevier, vol. 79(C).
    13. Danielle Winchester & Sandra Huston, 2015. "All Financial Advice for the Middle Class is Not Equal," Journal of Consumer Policy, Springer, vol. 38(3), pages 247-264, September.
    14. Cruciani, Caterina & Gardenal, Gloria & Rigoni, Ugo, 2021. "Trust-formation processes in financial advisors: A structural equation model," The Quarterly Review of Economics and Finance, Elsevier, vol. 82(C), pages 185-199.
    15. Tuckett, David, 2009. "Addressing the psychology of financial markets," Economics - The Open-Access, Open-Assessment E-Journal (2007-2020), Kiel Institute for the World Economy (IfW Kiel), vol. 3, pages 1-22.
    16. Sprenger, Julia, 2016. "Financial literacy: A barrier to seek financial advice but not a shield against following it," Ruhr Economic Papers 634, RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen.
    17. Eyal Carmel & Dana Carmel & David Leiser & Avia Spivak, 2015. "Facing a Biased Adviser While Choosing a Retirement Plan: The Impact of Financial Literacy and Fair Disclosure," Journal of Consumer Affairs, Wiley Blackwell, vol. 49(3), pages 576-595, November.

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