The Role of Dopamine in Risk - Taking and Investment Decisions- Insights from Neurofinance
Prof. M. Sumathy, D.Litt., Head, Department of Commerce, Bharathiar University, Coimbatore-46
P.K.Kesawaraj, Doctoral research scholar, Department of Commerce, Bharathiar University, Coimbatore-46
Abstract:
Advances in neurofinance have uncovered significant links between brain chemistry and financial decision making. Particularly the influence of dopamine on risk- taking behavior, Dopomine, a neurotransmitter associated with reward and pleasure, plays a crucial role in shaping how investors perceive gains, losses, and uncertainty functional MRI (fMRI) and positron emission tomography (PET) studies reveal that heightened dopamine activity in the brain’s striatum and prefrontal cortex correlates with increased risk- seeking behavior, often leading to speculative investments or overtrading. Conversely, dopamine deficiencies may result in excessive caution, potentially causing missed opportunities.
Behavioral experiments further demonstrate that dopamine fluctuations- triggered by market volatility or past successes –can distort risk assessment, fostering overconfidence or irrational exuberance. These findings have critical implications for financial advisors, algorithmic trading models, and personal investment strategies, suggesting that a deeper understanding of neurochemical influences could improve decision-making frameworks. Future research may explore pharmacological or behavioral interventions to regulate dopamine-driven biases, paving the way for more rational investment practices.
This abstract synthesizes current neuroscientific and behavioral finance research while proposing practical applications for mitigating cognitive biases in financial markets.
Keywords:
Dopamine’s role in reward processing and risk-taking, Neuroimaging evidence linking brain activity to investment choices, Behavioral implications for traders and portfolio managers, Potential interventions to counteract dopamine-induced biases.
