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Dates of related message(s) in the
Behavioral-Finance group (*):
Year/month, d: developed / discussed,
i: incidental

Neural / neuronal net

  Due to its length, this article is
      in  a separate page
      of the "N" glossary section

Neuroeconomics, Neurofinance

03/1i,2i - 04/1i - 05/1d,8i -
06/3i - 07/6i - 08/7d,11i

+ see neuroscience,
framing, emotions

When the brain hosts the market.

Neuroeconomics / neurofinance are scientific branches that study:

Physical and chemical phenomena
observed in the human brain when a person

takes economic and financial decisions.

Those attempts to dig within minds try to identify what mental factors influence
economic choices.

Those researches apply neuroscience (see below) to economics and finance.

They show, among other effects:

 The importance of the
unconscious brain activity

 in assembling data and preparing decisions.

Also, the crucial role of feelings

(pain, pleasure ) and the 

related emotions (fear, greed...), notably
in economic decisions, at least short term ones.

Emotional neurons, and their neurotransmitters, have their apartments
and corridors
in the executive floors inside our head.

* One example is that a lack of reliable information (as is the case
facing uncertainty instead of a measurable risk) can freeze

reasoning and make emotions take over

* Also some contagious collective panic or enthusiasm can exacerbate

In such cases most of the valuation job is taken over by brain sectors
that deal with emotions.

Choosing between research tools

From the financial lab to the financial brain

There are two kind of research tools in how economic / financial players
make decisions and behave

1) Some are rather similar to those used in experimental economics,

which studies mostly economic behavior within a group,

2) Others are specific to neurosciences.

They try to go identify physical and biochemical aspects that drive
the mind activity. They use high medical-like investigative
technologies, for example computerized brain imaging.

Tools #2 are becoming prominent to study the

economic decision process.

This reflects the fact that neuroeconomics - as opposed to socioeconomics -
ismore focused on the individual level than on the group level.

That difference is rather similar to the one between the behavioral

finance "micro" and behavioral finance "macro", as seen in the BF article.

Of course extrapolations to a group or to a society are also
attempted,as well as spotting cross relations between individual emotions
and social emotions,as one of the fields of social neuroscience.

Some applications

Buying and selling: pleasant or painful?

Applications are seen for example in marketing (how the brain reacts
to some products or advertising...).

They can be found also in financial simulations.

One example is to detect the pleasure or suffering
sometimes felt by someone who
buys or sells stocks.

Some "agent behavior modeling systems" applied to financial markets
might take that into account.

Another thing:
Neuroeconomics / neurofinance should preferably not be used as
...of manipulation (see neuroscience)

Some results of neurofinance studies

Orgasmic finance.

Nice, but not sure it is the best investing stimulus!

Some experiments have shown that:

People with psychopath traits, more precisely who are emotionless (*),

obtain better market trading performances than the average trader.

(*) "cold blood fishes" neither paralyzed by fear, nor carried away

by greed, nor conditioned by mimicry...

On the other hand, addictive traders might have their reasoning blocked 

by extreme feeling of pleasure similar to orgasm (**) when deciding
to buy or sell,

(**) it seems that the same sector of the brain is involved.

To show some nicely shaped person to a trader diverts its attention and

make it less wary in its market decisions.

Well, advertising people have understood long how to use "sex and the

Entrepreneurs are more able to take risky decision under stress than
    managers, something that could be linked to different dopamine levels.



Dates of related message(s) in the
Behavioral-Finance group (*):
Year/month, d: developed / discussed,
i: incidental

Neuro-linguistic, Neuro-semantics.

02/2i + see neuroscience,
framing, culture, representation

How words shape our thoughts.
Better be aware!

Definition: neuro-linguistic / neuro-semantics is a branch of neuroscience
that works on the influence of language, wording, culture on understanding
and behaviors.

Words (as well as pictures) are among the representations
(see that.
word) that influence motivations / decisions / behaviors.

This can explain, among other phenomena, some framing biases and types
of representativeness heuristic that are seen in this glossary.

One of its application areas  in economics and finance is the influence of
market culture
on behaviors.

Pros and cons

Helping the mind, or playing on its weaknesses?

  Neuro-linguistic can be useful, as a therapy, when used consciously.

It can also facilitate understanding and learning

by using phrases that raise more interest and motivation.

But it can also be a tool of manipulation, for example when
intentionally a negative word / phrase by a positive
or inversely.

Here we have "newspeak" or "politically correct speech".

This of course can apply, let us hope marginally, to economics
(marketing) or to finance to deceive investors for example).


See neurosciences


Dates of related message(s) in the
Behavioral-Finance group (*):
Year/month, d: developed / discussed,
i: incidental


02/2i - 03/2i,10i - 04/1i -
05/1i,2d - 08/2d,7d - 09/1d,4i

+ see neural nets, brain circuits,
profiling, framing, emotion,

Physics and chemistry of reasoning and emotions.
The lab in our brain!


Neuroscience is a field of research using physiological observations to
understand how the brain   , and typically the
human brain, is organized and works.

It studies how diverse brain areas, chemical secretions and electric
waves play a part in learning, reasoning and decision making

A lot of things take place in that box!

What neuroscience explores

Brain speleologists meeting brain chemists

More precisely neuroscience tries to:

Find how the brain is organized (mapping, anatomy) and how it

works (active zones, chemical secretions, electro-chemical
...). It studies:

The activity of the diverse brain

areas for example the (highly emotional) role of
the amygdala.

It uses scanning tools based on MRI / magnetic resonance
imagery or other technologies.

The chemical secretions active on the brain.
    Some of them
excite us and lead us to rush

decisions that might be inappropriate.

For example, in economic decisions notably, some (see table 
below) are related to impulsive / instant risk appetite
or to more ingrained
risk aversion.

The electric waves between neurons, as if every one has a 
    telephone number

Describe the cognitive process (see cognition),

Understand the brain role on attitudes, decisions and behaviors,

here we have "neuropsychology",

Understand also mental limitations and bugs that lead

to  reasoning biases, errors of decision or uncontrolled actions.

In some cases give statistical probabilities on how the mind

might react to some stimuli and in some situations. Of course

they have to be taken with precaution.

Find pathologies linked to brain defects, and whether therapies
    are possible.

Emotion and decision
      (for more details, see "emotion")

Decision biases are often due to an interference between reasoning and

For example, various cognitive biases can be fed by emotional biases,
not just by cognitive limitations in attention, memory, logical reasoning.

And now, seeing what thinks what,
     within the brain.

Indiscretion about what you think

By scanning the human brain, neurosciences observes:

What areas of the brain are most active in decision making:
   emotional zones and cognitive zones

Via neurochemistry, how chemical substances created in or for the
   brain influence
behaviors, by accelerating or moderating some

functions, and linking (neurotransmitters) neurons in different

All this is a bit complex, as

* those brain areas,

* those chemical activators / moderators

* and some electrical influxes

are either competing or in symbiosis.

Their influences can either exacerbate or compensate each other.

To take the example of brain zones,
there are two main "antagonist" types:

Some of them
   (limbic system...),

"instinctively" give priority to
(pleasure, suffering...), and
inhibit the neocortex
(see below).

Some  are even specialized in the
most basic and instinctive emotions.

Fear, for example, a primitive
emotion in animal evolution, is
a product of 
the "old reptilian
brain" or to be more precise, of
the brain amygdala.

Some others

try to give the leadership to
(knowledge, logic...).


In other words they filter basic
emotional amygdala impulses and 

bring their own "food for thought".

For efficiency, it would be
better that reason get that
leadership in most cases.

On the other hand, in case of
imminent danger, its filtering
should not freeze the immediate
decision and action needed.

Armies of neurons are always ready to fight each others and grab dominance
on decision making.
"Tempest under a skull" as Victor Hugo said.

Well, emotions often have the strongest army and the emotional neurons often
win the battle.

Therefore various psychologists consider there is a primacy of
(and routines) in most human decisions,
mainly for
short term decisions.

As for active chemical secretions (neurotransmitters

and hormones) here are the main ones:

Dopamin when tempted (desire) by a pleasant prospect /

Serotonin that regulates mood, by the way produced by our
    digestive system. Yes, our guts are a center of emotions!

Adrenalin when facing danger

Cortisol giving preference to immediate satisfaction against
    long term vision

Oxytocin that makes like and trust other people and can entail
    gullibility and clanism

Testosterone that gives appetite for risk, ambition, domination,
    show off

Norepinephrin giving energy (a bit like amphetamine) and
    calming down with a feeling of harmony after a satisfaction,

If possible, except if an immediate action is needed, wait that
are no more active ("sleep on it" so as to cool off) before
     making decisions.

Information and decisions

Reacting to signals on autopilot or hands on?

One important field of neuroscience is the relation between information and

It tries to identify the decision process when some information reaches
the mind
(how the mind processes "signals" ).

That knowledge might help people avoid some decision biases.

Two types of information interfere differently in the decision process:

1) Either

which is

or that the mind
considers so.






It provokes an automatic unconscious
, based on reflexes and habits
(see autopilot bias)
or a
semi-automatic / intuitive
(simplified reasoning : see heuristic)

This robotic (*) / knee-jerk response
can be driven by:

Either useful time-saving habits, simplified
  reasoning (heuristic)

Or a kind of zombie / Pavlovian mode,

started as a memory of a past reward
or loss, now
replaced by a pure reflex.

Or a recurrent emotional reaction,

Or an ingrained / instinctive way of doing
(reptilian brain...),

2) Or information

that is decisive
or viewed so, as
it contradicts the
rewards and


What takes place in this case, are:

Usually, a brain surge in pleasure or

A mental conflict about what 
   decision to take. in that inner fight,

reason as well as emotion are involved.

(*) Some physical "mutation" takes place in the brain when a
      mental habit takes hold

Of course, the brain itself does not change (it takes tens of
thousand years for such an evolution to take place).

But some connections between neurons via neurotransmitters,
once they took place often, become like "wired", thus quite
hard to redirect.
Those connections can span different areas of the brain.

Practical applications

Inserting hands into brains?

Of course the main practical purpose of neuroscience is mind therapy, for
people who suffer brain damages.

But other branches of neuroscience try to understand the decision process
and its consequences, such as:

Neuroeconomics (described above).

Neuromarketing that uses it for persuasion purposes

for example by detecting how sensory perception (see that word)
helps or deters purchases.

Social neuroscience, which tries to find bridges between
individual brain processes and social  influences (when people
are affected by other people's thoughts).

What about the ethics?

Neuroscience's studies and findings are
sometimes accused
of being used mostly
as a
manipulation tool

On the contrary to know its findings is precious
protect oneself against manipulation
(incl. self-manipulation).

Same thing for social psychology, behavioral
economics / behavioral finance...

(*) To find those messages: reach that BF group and, once there,
      1) click "messages" 2)
enter your query in "search archives".

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This page last update: 13/09/15  

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