EFFECTS OF LOSS AVERSION ON THE EVALUATION OF DECISION OUTCOMES Thesis submitted in accordance with the requirements of the University of Liverpool for the degree of Doctor in Philosophy by Aikaterini Kokmotou. December 2018 List of Abbreviations ACC Anterior cingulate cortex ANOVA Analysis of variance BOLD Blood oxygenation level dependent dACC Dorsal anterior cingulate cortex DLPFC Dorsolateral prefrontal cortex ECD Equivalent current dipole ECG Electrocardiographic EEG Electroencephalography EOG Electrooculographic ERN Error-related negativity ERP Event-related potential fMRI Functional magnetic resonance imaging FRN Feedback-related negativity OFC Orbitofrontal cortex PCC Posterior cingulate cortex PET Positron emission tomography PFC Prefrontal cortex PT Prospect theory rACC Rostral anterior cingulate cortex SCR Skin conductance response SD Standard deviation SEM Standard error of mean VLPFC Ventrolateral prefrontal cortex VMPFC Ventromedial prefrontal cortex VS Ventral striatum WTA Willingness to accept WTP Willingness to pay iii iv Contents List of Abbreviations................................................................................................... iii List of Figures ............................................................................................................. ix List of Tables................................................................................................................ x Acknowledgements ................................................................................................... xiii Abstract ...................................................................................................................... xv Chapter 1 .................................................................................................................... 1 General Introduction ............................................................................................................. 1 1.1 Decision making, loss aversion and outcome processing .................................... 1 1.2 Prospect theory ..................................................................................................... 2 1.2.1 Value function .............................................................................................. 4 1.2.2 Probability weighting function ..................................................................... 6 1.3 Loss aversion ....................................................................................................... 8 1.3.1 Neurophysiological research on loss aversion ........................................... 10 1.3.2 Phenomena related to loss aversion ........................................................... 16 1.4 Evaluation of decision outcomes in the brain .................................................... 18 1.5 ERP correlates of decision outcomes ................................................................. 18 1.5.1 Feedback-related negativity (FRN) ............................................................ 19 1.5.2 P300 ........................................................................................................... 26 1.6 Interim summary ................................................................................................ 28 1.7 Research problems ............................................................................................. 28 1.8 Aims ................................................................................................................... 30 1.9 Hypotheses ......................................................................................................... 30 Chapter 2 .................................................................................................................. 31 General Methods .................................................................................................................. 31 2.1 Loss aversion estimation .................................................................................... 31 2.1.1 Questionnaires ............................................................................................ 31 2.1.2 Endowment paradigms ............................................................................... 31 2.1.3 Gambling/choice tasks ............................................................................... 32 2.2 Electroencephalography (EEG) ......................................................................... 35 2.2.1 Physiological basis of the EEG signal ....................................................... 35 2.2.2 EEG signal acquisition and processing ...................................................... 35 2.2.3 Advantages and limitations of EEG ........................................................... 37 2.2.4 Artifact rejection ........................................................................................ 38 2.2.5 Event-related potentials (ERPs) ................................................................. 39 v 2.2.6 EEG analysis using statistical parametric mapping (SPM) ........................ 40 2.2.7 Source analysis ........................................................................................... 42 2.3 Summary ............................................................................................................ 47 Chapter 3 .................................................................................................................. 49 Study 1: Effects of loss aversion on neural responses to losses: an event-related potential study. ..................................................................................................................... 49 3.1 Abstract .............................................................................................................. 50 3.2 Introduction ........................................................................................................ 51 3.3 Methods .............................................................................................................. 53 3.3.1 Participants ................................................................................................. 53 3.3.2 Procedure ................................................................................................... 53 3.3.3 EEG Recordings ......................................................................................... 58 3.3.4 Behavioural analysis .................................................................................. 59 3.3.5 EEG analysis .............................................................................................. 60 3.3.6 Source reconstruction ................................................................................. 61 3.4 Results ................................................................................................................ 62 3.4.1 Choice parameters ...................................................................................... 62 3.4.2 FRN ............................................................................................................ 62 3.4.3 Correlations with loss aversion .................................................................. 64 3.4.4 Source reconstruction ................................................................................. 64 3.4.5 Curvature of the value function and FRN .................................................. 69 3.5 Discussion .......................................................................................................... 69 3.5.1 FRN and cortical sources ........................................................................... 70 3.5.2 Loss aversion and FRN .............................................................................. 71 Chapter 4 .................................................................................................................. 73 Study 2: Loss aversion influences the processing of actual but not counterfactual decision outcomes. ................................................................................................................ 73 4.1 Abstract .............................................................................................................. 74 4.2 Introduction ........................................................................................................ 75 4.3 Methods .............................................................................................................. 78 4.3.1 Participants ................................................................................................. 78 4.3.2 Procedure ................................................................................................... 78 4.3.3 EEG Recordings ......................................................................................... 80 4.3.4 ERP analysis .............................................................................................. 82 4.4 Results ................................................................................................................ 83 vi 4.4.1 Behavioural results ..................................................................................... 83 4.4.2 ERP results ................................................................................................. 83 4.4.3 Correlations with loss aversion .................................................................. 88 4.5 Discussion .......................................................................................................... 88