The Affective Impact of Financial Skewness on Neural Activity and Choice

Few finance theories consider the influence of "skewness" (or large and asymmetric but unlikely outcomes) on financial choice. We investigated the impact of skewed gambles on subjects' neural activity, self-reported affective responses, and subsequent preferences using functional magnetic resonance imaging (FMRI). Neurally, skewed gambles elicited more anterior insula activation than symmetric gambles equated for expected value and variance, and positively skewed gambles also specifically elicited more nucleus accumbens (NAcc) activation than negatively skewed gambles. Affectively, positively skewed gambles elicited more positive arousal and negatively skewed gambles elicited more negative arousal than symmetric gambles equated for expected value and variance. Subjects also preferred positively skewed gambles more, but negatively skewed gambles less than symmetric gambles of equal expected value. Individual differences in both NAcc activity and positive arousal predicted preferences for positively skewed gambles. These findings support an anticipatory affect account in which statistical properties of gambles--including skewness--can influence neural activity, affective responses, and ultimately, choice.