A Neuroeconomics Analysis of Investment Process with Money Flow Information: The Error-Related Negativity

Abstract EN

This investigation is among the first ones to analyze the neural basis of an investment process with money flow information of financial market, using a simplified task where volunteers had to choose to buy or not to buy stocks based on the display of positive or negative money flow information.

After choosing “to buy” or “not to buy,” participants were presented with feedback.

At the same time, event-related potentials (ERPs) were used to record investor’s brain activity and capture the event-related negativity (ERN) and feedback-related negativity (FRN) components.

The results of ERN suggested that there might be a higher risk and more conflict when buying stocks with negative net money flow information than positive net money flow information, and the inverse was also true for the “not to buy” stocks option.

The FRN component evoked by the bad outcome of a decision was more negative than that by the good outcome, which reflected the difference between the values of the actual and expected outcome.

From the research, we could further understand how investors perceived money flow information of financial market and the neural cognitive effect in investment process.