Decoding the Investor's Mind: Exploring Neurofinance in Decision-Making

Abstract

This paper explores neurofinance as a new domain integrating neuroscience, psychology, and behavioural finance to understand how investors make decisions. Risk-taking, reward expectation, and loss aversion—all core behavioural biases in investments—are driven by the activity of certain neural structures, the nucleus accumbens, amygdala, and insula. The author proposes the use of artificial intelligence and machine learning in neurofinance to improve the predictive capabilities of robo-advisers. While mentioning the primary obstacles of laboratory settings, ethics, and privacy, the author also alludes to the growing prospects of neurofinance in the development of future emotionally and rationally balanced investments. The anticipated outcomes are encouraging, but research in the neurofinance domain suffers from a number of limitations - lackluster laboratory conditions, low participant numbers, and a paradigm shift towards the need for knowledge in neuroscience. Through the lenses of neuroscience and behavioural finance, this research hopes to make a step toward understanding investor behaviour and the mental aspects associated with financial choices.