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The role of fear in home-biased decision making: first insights from neuroeconomics

Author

Listed:
  • Kenning, Peter
  • Mohr, Peter
  • Erk, Susanne
  • Walter, Henrik
  • Plassmann, Hilke

Abstract

We used functional magnetic resonance imaging (“fMRI”) to investigate the neural mechanisms underlying home–biased, financial decision-making. Twenty-eight subjects were instructed to make binary investment decisions between a foreign and a domestic mutual fund. Differential brain activity was detected between decisions involving funds of different national origins. In situations where participants had to decide between mutual funds from different countries, we found increased activity in the precentral gyrus, the fusiform gyrus and the inferior occipital gyrus. Moreover, during home-biased decisions we found a correlation between activity within the amygdala- hippocampal regions of the brain and the investor’s general risk aversion. This region has been found to be involved in negative emotional processing such as fear, so one interpretation is that home-biased financial decision making is modulated by negative emotions associated with risk aversion.

Suggested Citation

  • Kenning, Peter & Mohr, Peter & Erk, Susanne & Walter, Henrik & Plassmann, Hilke, 2006. "The role of fear in home-biased decision making: first insights from neuroeconomics," MPRA Paper 1076, University Library of Munich, Germany, revised 18 Nov 2006.
    • Handle: RePEc:pra:mprapa:1076
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    References listed on IDEAS

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    Cited by:

    1. Ronald Bosman & Frans Van Winden, 2010. "Global Risk, Investment and Emotions," Economica, London School of Economics and Political Science, vol. 77(307), pages 451-471, July.
    2. Anum Khan & Muhammad Shujaat Mubarik, 2022. "Measuring the role of neurotransmitters in investment decision: A proposed constructs," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 27(1), pages 258-274, January.

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    More about this item

    Keywords

    Financial Decision-Making; Home-Bias; fMRI; Neuroeconomics;
    All these keywords.

    JEL classification:

    • F30 - International Economics - - International Finance - - - General
    • G00 - Financial Economics - - General - - - General

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