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The Journal of Neuroscience, February 18, 2009, 29(7):2231-2237; doi:10.1523/JNEUROSCI.5296-08.2009

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Behavioral/Systems/Cognitive
Neural Response to Reward Anticipation under Risk Is Nonlinear in Probabilities

Ming Hsu,^1,2 Ian Krajbich,³ Chen Zhao,⁴ and Colin F. Camerer³

¹Beckman Institute for Advanced Science and Technology and ²Department of Economics, University of Illinois at Urbana-Champaign, Urbana, Illinois 61801, ³Division of Humanities and Social Sciences, California Institute of Technology, Pasadena, California 91125, and ⁴Massachusetts Institute of Technology, Cambridge, Massachusetts 02139

Correspondence should be addressed to Colin F. Camerer, Division of Humanities and Social Sciences, California Institute of Technology, Pasadena, CA 91125. Email: camerer{at}hss.caltech.edu

A widely observed phenomenon in decision making under risk is the apparent overweighting of unlikely events and the underweighting of nearly certain events. This violates standard assumptions in expected utility theory, which requires that expected utility be linear (objective) in probabilities. Models such as prospect theory have relaxed this assumption and introduced the notion of a "probability weighting function," which captures the key properties found in experimental data. This study reports functional magnetic resonance imaging (fMRI) data that neural response to expected reward is nonlinear in probabilities. Specifically, we found that activity in the striatum during valuation of monetary gambles are nonlinear in probabilities in the pattern predicted by prospect theory, suggesting that probability distortion is reflected at the level of the reward encoding process. The degree of nonlinearity reflected in individual subjects' decisions is also correlated with striatal activity across subjects. Our results shed light on the neural mechanisms of reward processing, and have implications for future neuroscientific studies of decision making involving extreme tails of the distribution, where probability weighting provides an explanation for commonly observed behavioral anomalies.

Key words: probability weighting; prospect theory; expected utility theory; fMRI; decision making; reward

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Received Nov. 3, 2008; revised Dec. 15, 2008; accepted Jan. 5, 2009.

Correspondence should be addressed to Colin F. Camerer, Division of Humanities and Social Sciences, California Institute of Technology, Pasadena, CA 91125. Email: camerer{at}hss.caltech.edu

Related articles in J. Neurosci.:

Mean–Variance or Prospect Theory? The Nature of Value Representations in the Human Brain

Erie D. Boorman and Jerome Sallet
J. Neurosci. 2009 29: 7945-7947. [Full Text]  

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