Ambiguity
Colin Camerer performed brain scans on a group of volunteers while they placed bets on whether the next card drawn from a deck would be red or black. In an initial set of trials, the players were told how many red cards and black cards were in the deck, so that they could calculate the probability of the next card’s being a certain color. Then a second set of trials was held, in which the participants were told only the total number of cards in the deck.
The second setup was more like the real world: the players knew something about what might happen, but not very much. With less information to go on, the players exhibited substantially more activity in the amygdala and in the orbitofrontal cortex, which is believed to modulate activity in the amygdala. “The brain doesn’t like ambiguous situations,” Camerer said. “When it can’t figure out what is happening, the amygdala transmits fear to the orbitofrontal cortex.”
The results of the experiment suggested that when people are confronted with ambiguity their emotions can overpower their reasoning, leading them to reject risky propositions. This raises the possibility that people who are less fearful than others might make better investors, which is precisely what George Loewenstein found when he carried out a series of experiments with a group of patients who had suffered brain damage.
Each of the patients had a lesion in one of three regions of the brain that are central to the processing of emotions: the amygdala, the orbitofrontal cortex, or the right insular cortex. The researchers presented the patients with a series of fifty-fifty gambles, in which they stood to win a dollar-fifty or lose a dollar. This is the type of gamble that people often reject, owing to loss aversion, but the patients with lesions accepted the bets more than 80% of the time, and they ended up making significantly more money than a control group made up of people who had no brain damage.
“Mind Games” by John Cassidy