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Neurofinance is an interdisciplinary field that seeks to explain the nature of the cog­ni­tive processes engaged in acquir­ing and pro­cess­ing infor­ma­tion in finan­cial deci­sion mak­ing. It studies how people select a speific action plans based on the acquired representations of the values of potential investment prospects. In Neurofinance, researchers try to identify what kind of infor­ma­tion the human brain can process effi­ciently (and what kind it can­not), as well as the envi­ron­men­tal con­di­tions facil­i­tat­ing or ham­per­ing this infor­ma­tion pro­cess­ing. Another goal is to bet­ter under­stand how invest­ment deci­sions are tuned depend­ing on the appre­ci­a­tion of dis­tinct kinds of uncer­tainty, such as risk, jump risk, and esti­ma­tion uncer­tainty (ambi­gu­ity and model uncer­tainty).

It combines research methods from neuroscience, experimental and behavioral [|behavioral finance and economics], and cognitive and social psychology. Behav­ioral finance emerged in the 90s to per­fect the insights of math­e­mat­i­cal finance. The point of depar­ture of behav­ioral finance is that because clas­si­cal finance assumes full ratio­nal­ity, it can­not explain many price pat­terns. Using insights from all behav­ioral sci­ences (cog­ni­tive neu­ro­science, psy­chol­ogy, soci­ol­ogy) on how real peo­ple depart from the ratio­nal model — real peo­ple are bound­edly ratio­nal, behav­ioral finance can ratio­nal­ize hitherto-puzzling price pat­terns.

The epistemology [|epis­te­mol­ogy] under­ly­ing neu­ro­fi­nance is dif­fer­ent and reflects recent advances in deci­sion neu­ro­science. We’re ini­tially agnos­tic about the degree of ratio­nal­ity of peo­ple, i.e, we do not take peo­ple to be lim­ited in their com­pu­ta­tional capa­bil­i­ties. Rather, we infer their degree of sophis­ti­ca­tion exper­i­men­tally, from the obser­va­tion of behav­ior and neural activ­ity dur­ing cog­ni­tive tasks per­formed in the lab. These cog­ni­tive tasks repli­cate chal­lenges that are rou­tinely encoun­tered in real world finan­cial deci­sion-mak­ing.

Related Fields
Neuroeconomics have also opened the door for other new emerging fields like Nueroinvesting and Neurotrading. These new fields of study also focus on the cognitive processes engaged in acquiring and processing information in financial decision making. According to Elise Payzan, portfolio managers and traders have to process information on the spot in rapidly changing environments. Little is known about how to tailor organizational and individual decision-making processes to help people process information efficiently in such contexts. By identifying environmental factors improving efficient information processing, it is hoped that research in neurofinance will produce practical results on how to improve investment and trading decisions, at both individual and organizational levels. As for now, there is also a new concept of using nootropics (smart drugs) to help investors/traders enhance their cognitive acuteness while trading the market. The company leading this field is Trubrain Trading.

Reeferences
http://www.elisepayzan.com/neurofinance-definition/