Psychological Perspectives on Financial Decision Making

Foreword
Preface
Contents
Contributors
About the Editors
Part I: The Level of the Brain
Chapter 1: Neural Bases of Financial Decision Making: From Spikes to Large-Scale Brain Connectivity
Spiking Neurons
The Anatomy of the Neuron
The Neuron at Rest: The Membrane Potential
The Neuron in Action: The Action Potential
Communication from One Neuron to the Next
From Neurons to Networks
Methodological Tools Used in Neuroscience
Single-Unit Recording
Functional Magnetic Resonance Imaging (fMRI)
Electroencephalography (EEG) and Magnetoencephalography (MEG)
Measuring the Communication Between Brain Regions
Manipulating Brain Activity
The Reward Circuit
A Network of Cortical and Subcortical Structures
Dopamine Neurons Encode a Reward Prediction Error (and More)
Decision Making as Evidence Accumulation
The Principle of Evidence Accumulation
Evidence Accumulation in Single Neurons and Population of Neurons
Evidence Accumulation in Large-Scale Brain Activation and Connectivity
Concluding Remarks
References
Chapter 2: Neural Correlates of Decision Variables and Strategic Preferences
Introduction
Decision Neuroscience: An Overview
Neuroscience and Financial Decision Making
Valuation
Risk and Uncertainty
Neuroscience and Strategic Decision Making
Future Directions
References
Chapter 3: Hormones, Stress and Financial Decision Making
The Significance of Making Decisions and the Variety of Finance
Cognition Versus Emotion
The Role of Reward in Financial Decisions
The Brain and Financial Rewards
Risk Appetite and Financial Decisions
Hormones and Financial Decisions
Stress and Its Influence on Financial Decisions
The Endocrine Stress Response
Cortisol and Decision Making
Stress and the Brain
The Nature and Function of Testosterone
Lifetime Trajectory of Testosterone
Testosterone, Risk and Rewards
The Menstrual Cycle and Decisions in Females
The Importance of Trust: Oxytocin
Interactions Between Hormones: The Importance of Endocrine Patterns
The Covert Action of Hormones in Financial Decision Making
References
Part II: The Level of an Individual Decision Maker
Chapter 4: Cognitive Abilities and Financial Decision Making
Introduction
Intelligence
Statistical Numeracy
Multiple Numeric Competencies
Approximate Numeracy
Subjective Numeracy (Numeric Confidence)
How to Improve Financial Decision Making?
Cognitive Training and Education
Cognitive Training
Education
Decision Aids
Summary
References
Chapter 5: The Arrested Deployment Model of Financial Literacy
Introduction
Financial Literacy
From Literacy to Rationality
The Arrested Deployment Model
Implications of the Model
The Arrested Deployment Model in Action
Emotional Influences
Financial Avoidance
Self-Control
Tasks’ Features: Complexity and Timing Gratification of Financial Engagements
The Long-Term Influence of a Financial Intervention Program: A Case Study
Conclusions
Implications
References
Chapter 6: Emotions and Financial Decision Making
Introduction
Emotions in Financial Decision Making: How Theoretical Views Have Changed over the Last 20 Years
Integral Emotions
The Functions of Integral Emotions in Decision Making
Anticipated Emotions
Mental Imagery as an Affective Input to the Decision Making Process
Incidental Emotions
The Functions of Incidental Emotions in Decision Making
Mood as a Special Case of Incidental Emotions
The Effects of Mood on Stock Market Behaviors
Concluding Remarks
References
Chapter 7: Financial Decision Making and Individual Dispositions
Introduction
Saving
Saving and Personality
Saving and Time Perspectives
Saving and Self-Control
Saving and Motivational Systems
Investing
Investing and Personality: The Big Five Model
Investing and the Dark Triad of Personality
Investing and Time Perspectives
Investing and Motivational Systems
Borrowing
Psychological Dispositions and Borrowing
Borrowing and Personality: The Big Five Model
Borrowing and Self-Control
Borrowing and Locus of Control
Financial Cheating
Psychological Dispositions and Financial Cheating
Financial Cheating and Personality: The HEXACO Model
Financial Cheating and Personality: The Big Five Model
Financial Cheating and the Dark Triad of Personality
Concluding Remarks
References
Chapter 8: Aging and Financial Decision Making
Introduction
Cognitive Deliberation and Age-Related Differences in Financial Decision Making
Age-Related Differences in Cognitive Deliberation
Age-Related Differences in Cognition and Motivation
Experience-Based Knowledge and Age-Related Differences in Financial Decision Making
Age-Related Differences in Experience-Based Knowledge
Emotions and Age-Related Differences in Financial Decision Making
Age-Related Differences in Emotion and Motivation
Interventions
Nudges
Decision Aids
Training
Future Directions
Measurement Issues
Social Context of Financial Decisions
Maturational Change Vs Cohort Differences
Conclusion
References
Chapter 9: Financial Decision Making Under Uncertainty: Psychological Coping Methods
The Uncertainty Challenge: Rational Models in an Irrational Market
Lessons from Russell’s Turkey
Under Uncertainty, Less Is More
Reducing Uncertainty with Simple Heuristics and One-Reason Decision Making
Demarcating Uncertainty with Decision Reference Points
Implications for Thinking, Fast and Slow and the Dichotomy of Systems 1 and 2
References
Part III: The Level of the Society
Chapter 10: Stock Markets, Market Crashes, and Market Bubbles
The Omnipresent Stock Markets Bubbles and Crashes
Taxonomy of Stock Markets, Bubbles, and Crashes
The Individual’s Experience of Extreme Market Events
Typical Biases on the Stock Market
The Role of Individual Differences on the Trading Floor
Experimental Asset Markets
Econophysics: What Social Scientists Could Learn from Physicists or the Other Way Round?
Concluding Remarks
References
Chapter 11: Cognitive Processes Underlying Impaired Decision Making in Gambling Disorder
From Harmonious to Obsessive Gambling Passion
Gambling Disorder and Decision Making
Impaired Cognitive Processes in Gambling Disorder
Motor Response Inhibition
Cognitive Flexibility
Reactivity to Monetary Gains and Losses
Hypersensitivity Toward Gambling-Related Stimuli
Attentional Bias
Implicit Associations
Neural Cue Reactivity
Self-Control Mechanisms Involved in Gambling Harm Reduction
Concluding Remarks
References
Chapter 12: The Psychological Perspective on the Antecedents and Consequences of Consumer Borrowing
Introduction
Antecedents of Borrowing Decisions
Consumption Desires and Borrowing
Attitude Towards Borrowing
Borrowing Decisions
Consequences of Borrowing for Well-Being
Satisfaction with Consumption
Psychological Concomitants of Debt and Over-Indebtedness
Concluding Remarks
References
Chapter 13: Tax Compliance: Research Methods and Decision Processes
Introduction
Tax Compliance: Theoretical Models and Determinants of Compliance
Rational Choice Model
Rationality and Anomalies
Bomb Crater Effect
Echo Effect
Source of Income
Behavioral Choice Model
Mental Accounting
The Social Contribution Dilemma
Economic and Psychological Determinants of Compliance
Knowledge, Attitudes, and Tax Morale
Personal Characteristics: Demographics, Personal Values, and Norms
Social Norms
Perceived Fairness and Trust
Motivational Postures
Integration of Economic and Psychological Insights: The Slippery Slope Framework
Methods in Tax Research
Surveys
Experiments
Field Experiments
Comparison of Methods
Information Processing in Tax Decisions
Eye Tracking
Mouse Tracking: Mouselab and Mouse Tracker
Mouselab
Mouse Tracker
Neural Techniques and Peripheral Psychophysiology
Practical Implications
References
Chapter 14: A Psychological Perspective on Charitable Giving and Monetary Donations: The Role of Affect
Introduction
Affect as a Motivator of Charitable Giving
Scope Insensitivity and Compassion Fade
Limitations of the Affect System
Iconic Victims and the Power of Affect to Motivate Charitable Giving
Debiasing Scope Insensitivity and Compassion Fade
Perceived Effectiveness and Pseudoinefficacy
A Dual-Process Model of Pseudoinefficacy
Debiasing Pseudoinefficacy
Conclusions
References
Index