Imagine you've lost your job. You have some money saved, and a chance to double it with a gamble. But if you lose the bet, you'll forfeit everything. What would you do?
Most people would not gamble their savings, according to Benedetto De Martino of California Institute of Technology, author of a study published February 8 in Proceedings of the National Academy of Science. People tend to choose avoiding losses over acquiring gains—a behavior known as loss-aversion.
But people with damage to the amygdala—an almond-shaped part of the brain involved in emotion and decision-making—are more likely to take bigger risks with smaller potential gains, De Martino's study found. Two women with bilateral amygdala damage showed a dramatic reduction in loss aversion compared with age-matched control subjects on a series of experimental gambles, despite understanding full well the values and risks involved.
De Martino already suspected that the amygdala was crucial for loss-aversion based on earlier studies using functional magnetic resonance imaging (fMRI). But these two rare cases with damage to the very structure in question allowed De Martino to directly test his hypothesis. "In functional MRI, you never know if the response is reflecting something else. With the amygdala injury, you have an on "off" response," De Martino says.
Whereas healthy control subjects who stood to win $20 but lose $15 were less likely to gamble than if they stood to win $50 but lose only $10, the two patients with amygdala damage were much less affected by the disparity between potential gains and losses. In some cases, they chose to gamble even when the potential losses outweighed the potential gains.
The concept of loss-aversion can be applied to many things. Take, for example, someone considering elective surgery. The more serious the possible complications—not matter how unlikely—the less likely he or she is to proceed. But De Martino is especially interested in how loss-aversion applies to money. "My dream would be an economic theory that could capture the complexities of human behavior, based on real people and real brains rather than assumptions," he explains. De Martino's field of study is aptly named neuroeconomics. "It is a more biological view of social science," he says. "A lot of economic theorists think about humans as machines and forget about emotional processing."
In previous work, De Martino showed that amygdala damage makes people behave more like these theoretical machines. "Strangely enough, people with damage to the emotional system are, paradoxically, more rational in making certain types of decisions. Their decisions don't take into account any emotional processing."
Interestingly, the older of the two women not only lacked loss-aversion, she was even loss-seeking. This difference between the two women was mirrored by differences between their age-matched controls. "As you get older, you get less loss-averse," De Martino says, explaining that even the older control subjects were less fearful of loss. "Your perspective on life changes because you have fewer years to live." This effect could stem from age-related reductions in the volume of the amygdala—as we age, our brains shrink. De Martino says in addition to age, other factors such as income and education are also at play.
The amygdala damage did not appear to affect risk-aversion—a similar behavior with an important difference. People who are risk-averse are less likely to take chances even when they have nothing to lose.
Whereas loss-aversion might sound abstract to an economist, De Martino says, it probably reflects a very ancient mechanism in the brain. "Think about an animal. It has to get food, but at the same time it has to protect itself from predators. It would be very wise for an animal to weigh gains and losses from an evolutionary perspective." Although a long time has passed since humans had to worry about predators, financial well-being is necessary for survival in the modern world, albeit more abstractly. De Martino's study suggests that the amygdala—known to be involved in processing fear—may make us afraid to risk losing money. "It may be that the amygdala controls a very general biological mechanism for inhibiting risky behavior when outcomes are potentially negative," De Martino says.