The Psychophysiology of Risk Processing and Decision Making at a Regional Stock Exchange
Author(s)Perry, John C.
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A longstanding controversy in philosophy is whether decision-making isgoverned by reason or emotion. I study the role of physiologicalresponses in the decision-making process within the realm of financialmarkets, where both the environment and decisions---trades---aremeasurable.In an experiment performed on a regional stock exchange, mycollaborators and I record six different types of physiologicalsignals---skin conductance/galvanic skin response (SCR/GSR), bloodvolume pulse (BVP), electrocardiogram (ECG),electroencephalogram (EEG), electromyogram (EMG), andtemperature (Temp)---of monetarily motivated professionals making highpressure decisions. From these signals I estimate underlyingphysiological features, such as heart rate,changes in body temperature, and amplitude of SCR, which are proxy foraffect. Simultaneously, we record real-time market information whichthe specialists process and which serves as the basis for theirdecisions, as well as recording their decisions and outcomes.In a sample of eight market-makers, I find statistically significantdifferences in mean skin conductance response and cardiovascularvariables during transient market events relative to no-market-eventcontrol intervals. In addition, I find a strong relationship betweentrading decisions and physiological responses. Using regression, Idemonstrate that heart rate variability can statisticallysignificantly improve predictions of trading decisions, although notby much.
Massachusetts Institute of Technology Computer Science and Artificial Intelligence Laboratory