SoylentNews

lhsi writes:

Abstract: http://www.pnas.org/content/early/2014/07/02/1318416111

In a study in the Proceedings of the National Academy of Sciences this week, scientists at the Virginia Tech Carilion Research Institute and Caltech found that, when they simulated market conditions for groups of investors, economic bubbles in which the price of something could differ greatly from its actual value invariably formed.

Even more remarkably, the researchers discovered a correlation between specific brain activity patterns and sensitivity to those bubbles.

Montague and colleagues enrolled 320 subjects in a market-trading simulation game. Up to two dozen participants played in each of 16 market sessions, with two or three participants simultaneously having their brains scanned using functional magnetic resonance imaging, or fMRI, a noninvasive technique that allows scientists to use microscopic blood-flow measurements as a proxy for brain activity.

At some point during the 50 trading periods of each session, a price bubble would invariably form and crash. The scientists had suspected that crowd cognition would result in some bubble formation, though they had not expected it to happen every time.

What surprised the scientists even more were the distinctive brain activity patterns that emerged among the low earners and high earners.

Traders who bought more aggressively based on activity in one brain region, the nucleus accumbens, earned less.

In contrast, the high earners seemed to ignore nucleus accumbens activity in favor of the anterior insular cortex, a brain area active during bodily discomfort and unpleasant emotional states.

Just before a bubble peaked as their brain scans were revealing an increased activity in the anterior insula the high earners would begin to sell their shares.

The scientists believe the high earners' brain activity may represent a neural early warning signal of an impending crash.