Cheerful traders ‘encourage risk taking’

April 8th, 2009 - 2:18 pm ICT by ANI  

London, Apr 8 (ANI): Even an ephemeral exposure to a smiling face can prompt people to make risky investment decisions, concludes a new study.

Graduate student Julie Hall of the University of Michigan in Ann Arbor has shown experiments in which 12 male and 12 female volunteers played a game in which they repeatedly had to choose between investing in a “safe” bond and two much riskier stocks.

For every round of the game, the bond paid out 3 dollars. One of the stocks paid out 5 dollars half of the time, while the other lost 5 dollars at the same rate. At the start of the game, the players were told the rules but didn’t know which of the stocks was good and which was bad: that only emerged as the game unfolded, reports New Scientist.

As with real-world investments, the good stock became bad at certain points during the game, and vice versa, the Cognitive Neuroscience Society meeting in San Francisco heard.

Under these circumstances, the rational strategy is to keep investing in the safe bond. This is mostly what participants did - but only when they were shown an image of a face that showed no emotion before each round. Volunteers who were shown a happy face were much more likely to choose the risky stocks. It made no difference whether the face was displayed long enough for the volunteers to register it consciously, or flashed up fleetingly so it was only perceived subliminally.

Brian Knutson, a psychologist at Stanford University in California, pointed out: “The market is made up of individuals, and individuals have reactions to what’s going on.”

While they were playing the game, the volunteers’ brains were also scanned using functional magnetic resonance imaging. This showed that the risky decisions were preceded by activity in a brain area called the nucleus accumbens, while the safe bets followed excitation in the anterior insular cortex. (ANI)

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