title: Irrational exuberance and neural crash warning signals during endogenous experimental market bubbles.
abstract: Groups of humans routinely misassign value to complex future events, especially in settings involving the exchange of resources. If properly structured, experimental markets can act as excellent probes of human group-level valuation mechanisms during pathological overvaluations--price bubbles. The connection between the behavioral and neural underpinnings of such phenomena has been absent, in part due to a lack of enabling technology. We used a multisubject functional MRI paradigm to measure neural activity in human subjects participating in experimental asset markets in which endogenous price bubbles formed and crashed. Although many ideas exist about how and why such bubbles may form and how to identify them, our experiment provided a window on the connection between neural responses and behavioral acts (buying and selling) that created the bubbles. We show that aggregate neural activity in the nucleus accumbens (NAcc) tracks the price bubble and that NAcc activity aggregated within a market predicts future price changes and crashes. Furthermore, the lowest-earning subjects express a stronger tendency to buy as a function of measured NAcc activity. Conversely, we report a signal in the anterior insular cortex in the highest earners that precedes the impending price peak, is associated with a higher propensity to sell in high earners, and that may represent a neural early warning signal in these subjects. Such markets could be a model system to understand neural and behavior mechanisms in other settings where emergent group-level activity exhibits mistaken belief or valuation.
authors.affiliation: Humanities and Social Sciences and Computational and Neural Systems, California Institute of Technology, Pasadena, CA 91125; acs@hss.caltech.edu camerer@hss.caltech.edu read@vt.edu.
authors.forename: Alec
authors.initials: A
authors.lastname: Smith
authors.affiliation: Virginia Tech Carilion Research Institute, Virginia Tech, Roanoke, VA 24016; and.
authors.forename: Terry
authors.initials: T
authors.lastname: Lohrenz
authors.affiliation: Virginia Tech Carilion Research Institute, Virginia Tech, Roanoke, VA 24016; and.
authors.forename: Justin
authors.initials: J
authors.lastname: King
authors.affiliation: Virginia Tech Carilion Research Institute, Virginia Tech, Roanoke, VA 24016; andThe Wellcome Trust Centre for Neuroimaging, University College London, London WC1N 3BG, United Kingdom acs@hss.caltech.edu camerer@hss.caltech.edu read@vt.edu.
authors.forename: P Read
authors.initials: PR
authors.lastname: Montague
authors.affiliation: Humanities and Social Sciences and Computational and Neural Systems, California Institute of Technology, Pasadena, CA 91125; acs@hss.caltech.edu camerer@hss.caltech.edu read@vt.edu.
authors.forename: Colin F
authors.initials: CF
authors.lastname: Camerer
mesh_terms: D001519:Behavior; D001921:Brain / Q000502:physiology*; D003132:Commerce; D004644:Emotions / Q000502:physiology*; D006801:Humans; D007449:Investments
keywords: asset bubbles; hyperscanning; neuroeconomics