Traditional economic analysis
based on the Efficient Market Hypothesis generally assumes that people
act as perfectly rational economic agents therefore trying to maximize
their expected utility. The assumption of this particular type of rationality
was challenged by many investigators. They had identified a large number
of biases and deviations from expected utility maximization that people
exhibited when behaving as economic agents. Presence of all these biases
had led to a notion of human irrationality especially as related to probabilistic
judgments and letting emotions to influence the decision process. Unfortunately,
just identifying deviations from rationality was not sufficient for neither
describing the economic behavior of individuals no explaining the financial
markets.
In our research, we build upon recent advances in cognitive sciences and
neurosciences, in particular on the implications that emotion is an integral
part of decision-making processes. Human rationality is viewed in broader
context, taking into account the evolutionary processes that were shaping
human brain for millions of years in order to improve the chances for
survival. We are trying to understand how the human "stone age brains"
have adapted to the modern environment, especially to such a complex one
as financial marketplace.
In this research project, we employ various methods of contemporary experimental
psychology to study individuals involved in financial decision-making
processes. We work to establish a link between physiological responses
and aspects of information processing that accompany decision making.
Financial context gives us a benefit of an experimental environment, where
the inputs and probabilities (risks) are well-defined and often easy to
quantify. Our subjects are finance professionals that are highly trained
individuals and who are very well motivated thus allowing us to avoid
the controversy surrounding many of the studies in traditional experimental
economics.
Relevant Publications and Preprints: