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Published VersionCC BY V4.0, Open Access
Journal article
Strict certainty preference in the predictive brain: a new perspective on financial innovations and their role in the real economy
Annals of Finance, Vol.20, pp.277-287
2024
Appears in UniSC Supported Open Access Outputs
Abstract
The dominant paradigm in neuroscience considers the brain to be a prediction engine. The brain generates predictions first, which are then contrasted with information to generate error signals. Finite brain resources are subsequently spent in selectively processing the error signals based on their relative value with higher value signals getting a priority. In this way, the brain can be thought of as optimizing on its own internal resources before seeking to optimize on the resources available in the external world. We show that such considerations change the cost-benefit calculations of certain vs uncertain outcomes in the brain, giving rise to, what can be termed as, a strict certainty preference. A new perspective on prominent financial innovations (such as securitization, interest rate swaps, and credit default swaps) emerges, with a dark side that potentially leads to a misallocation of resources towards low NPV projects.
Details
- Title
- Strict certainty preference in the predictive brain: a new perspective on financial innovations and their role in the real economy
- Authors
- Hammad Siddiqi (Corresponding Author) - University of the Sunshine Coast, Queensland, School of Business and Creative Industries
- Publication details
- Annals of Finance, Vol.20, pp.277-287
- Publisher
- Springer
- Date published
- 2024
- DOI
- 10.1007/s10436-024-00444-7
- ISSN
- 1614-2454; 1614-2446
- Copyright note
- This article is licensed under a Creative Commons Attribution 4.0 International License, which permits use, sharing, adaptation, distribution and reproduction in any medium or format, as long as you give appropriate credit to the original author(s) and the source, provide a link to the Creative Commons licence, and indicate if changes were made. The images or other third party material in this article are included in the article's Creative Commons licence, unless indicated otherwise in a credit line to the material. If material is not included in the article's Creative Commons licence and your intended use is not permitted by statutory regulation or exceeds the permitted use, you will need to obtain permission directly from the copyright holder. To view a copy of this licence, visit http://creativecommons.org/licenses/by/4.0/.
- Organisation Unit
- School of Business and Creative Industries
- Language
- English
- Record Identifier
- 991036698602621
- Output Type
- Journal article
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- Business, Finance
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