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Published VersionCC BY V4.0, Open Access
Journal article
Information Processing in the Brain and Financial Innovations
The Journal of Behavioral Finance, Vol.25(4), pp.410-419
2024
Appears in UniSC Supported Open Access Outputs
Abstract
Based on recent neuroscience findings, we consider the brain to be a Bayesian prediction engine operating under a resource constraint. It meets incoming information with predictions based on an internal model of the world. Finite brain resources are then spent on processing the gaps between incoming information and these predictions. In addition, adverse information may trigger a stress response, exacting a cost on the brain and the body. We argue that the brain, which ultimately is the seat of all decision-making, considers these costs while choosing among alternatives. We show that incorporating such costs enriches our understanding of the financial market behavior by providing a new approach to recent financial innovations, as well as pushing up the equity premium and making it countercyclical. Ignoring such costs may make certain and uncertain utility appear different from each other consistent with recent empirical findings.
Details
- Title
- Information Processing in the Brain and Financial Innovations
- Authors
- Hammad Siddiqi (Corresponding Author) - University of the Sunshine Coast, Queensland, School of Business and Creative Industries
- Publication details
- The Journal of Behavioral Finance, Vol.25(4), pp.410-419
- Publisher
- Routledge
- Date published
- 2024
- DOI
- 10.1080/15427560.2023.2198718
- ISSN
- 1542-7579; 1542-7560
- Copyright note
- © 2023 The Author(s). Published with license by Taylor & Francis Group, LLC. This is an Open Access article distributed under the terms of the Creative Commons Attribution License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited. The terms on which this article has been published allow the posting of the Accepted Manuscript in a repository by the author(s) or with their consent.
- Organisation Unit
- School of Business and Creative Industries
- Language
- English
- Record Identifier
- 99717597802621
- Output Type
- Journal article
Metrics
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- Web Of Science research areas
- Business, Finance
- Economics
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