Business

Brain activity and stock trading said to have direct links

Researchers have found through a new study that there is a link between brain activity and stock trading. Researchers in Germany, Switzerland and US have developed a model that makes real-life stock buying behavior comprehensible for the first time.

Combining socioeconomic, psychological and neuroscientific data in an innovative way, researchers found that the cortical regions of the “anterior insular” are more active among people who do not trade stocks. In experienced stock traders, the activity of this region of the brain was lower. The results will now be presented in the journal Scientific Reports.

For the study researchers examined a total of 157 male subjects aged 29 to 50 years. The participants were first asked to answer questionnaires on their economic situation (do you have debts?), their investment behavior (do you yourself trade stocks?) and their willingness to take risks (how risk taking are you with respect to financial investments?).

After that they were asked to undergo a functional Magnetic Resonance Imaging (fMRI) scan whilst repeatedly answering the question: Should I buy a safe bond or perhaps make twice as much profit with a stock? After the decision was made by pressing a button, the stock outcome was displayed and the final sum of the experiment was later paid out to the participants. To allow for an adequate statistical evaluation of the results, each choice was repeated by the participants a total of 96 times.

The experiment showed that one brain structure in particular played an important role: The “anterior insular”, which is found in both hemispheres of the cerebral cortex. Both the left and right variants of this brain region were particularly active when a more risk-averse test subject pressed the button to buy stocks. However, the structure was significantly less active in subjects who had already bought stocks at some point in their lives than in subjects who generally shy away from financial risks.

By contrast, there was only little difference between stock buyers and conventional investors, when their stock trading resulted in substantial profits.

The models calculated by the scientists showed that, in addition to already known economic factors such as income and education, risk optimism and risk tolerance in particular have a major influence on stock purchase decisions.

About the author

Shawn Symonds

Shawn Symonds

Seven years in pharmaceuticals has given Shawn immense exposure in everything related to medicines, drugs, chemicals and related sectors – at least from the PR front. Through his insider access to the sector, he has gained valuable insight into the entire manufacturing process of medicines and vaccines.

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