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PEOPLE WITH DAMAGE TO THE PART OF THE BRAIN THAT CONTROLS EMOTION MAKE WISER FINANCIAL CHOICES
08 August 2006 - Carnegie Mellon Universtity

In an intriguing and unusual study, researchers have found that people who have brain damage that impairs their emotional responses can, in certain situations, make better investment decisions than normal people. The paper was published in the June issue of Psychological Science and was co-authored by faculty at Stanford University, Carnegie Mellon University and the University of Iowa.

"It may be the first study that documents a situation in which people with brain damage make better financial decisions than normal people," said George Loewenstein, a professor of economics at Carnegie Mellon and a co-author of the study. The other co-authors were Baba Shiv, associate professor of marketing at the Graduate School of Business at Stanford University, and Antoine Bechara, Hanna Damasio and Anonio R. Damasio, professors of neurology at the University of Iowa.

This study is part of the emerging field of neuroeconomics, which investigates the mental and neural processes that drive economic decision-making. Based on previous studies, the researchers concluded that the emotionally impaired participants were less averse to risk and thus were more willing to take gambles that had a high payoff. Emotions lead people to avoid risks even when the potential benefits far outweigh the losses, a phenomenon known as myopic loss aversion that scholars have concluded can explain, for example, why people prefer to invest in bonds over historically higher-performing stocks.

"Emotions serve an adaptive role in speeding up the decision-making process. However, there are circumstances in which a naturally occurring emotional response must be inhibited, so that a deliberate and potentially wiser decision can be made," Shiv said.

The researchers compared three groups of people: those with lesions in brain regions related to emotion; a control group with lesions in brain regions unrelated to emotion; and normal participants with no brain damage. All participants were give $20 in play money, which they were told to treat as real because they would receive a gift certificate for the amount they had left at the end of the experiment. The participants were asked to make several rounds of investment decisions, in each of which they had to decide whether or not to invest $1. If the participant chose not to invest during a round, they kept their dollar. Otherwise, a researcher would flip a coin, in view of the "investor" to determine the outcome. If the coin came up heads, the participant would lose the $1 they had invested. If it came up tails, then $2.50 would be added to the participant's account. Since the odds of either possibility were 50-50, the best choice, in terms of expected value, was to invest in each round.

The experiment lasted 20 rounds, and when it was over, the emotionally impaired participants had outperformed the two other groups, earning on average $25.70. The normal participants earned an average of $22.80, and the lesion control group earned $20.07. The normal group invested in about 58 percent of the rounds, compared to about 84 percent by their emotionally impaired counterparts.

The study does not mean that it is a good thing to have lesions in emotional regions of the brain. Such patients generally make worse decisions than those with intact brains. In this experiment, risk-taking was the most advantageous behavior, so the participants who were less fearful made better choices. However, in other studies, the experiment has been set up so that risky choices had lower expected values, and in these studies, normal subjects tended to perform more optimally. Emotions clearly play an important role in human life; this study suggests, however, that there are situations in which they can lead us astray.

http://www.cmu.edu

About: Carnegie Mellon Universtity
The Carnegie Institution of Washington (www.carnegieinstitution.org) has been a pioneering force in basic scientific research since 1902. It is a private, nonprofit organization with six research departments throughout the U.S. Carnegie scientists are leaders in plant biology, developmental biology, astronomy, materials science, global ecology, and Earth and planetary science.

Since its founding in 1900 by industrialist and philanthropist Andrew Carnegie, Carnegie Mellon University has been a pragmatic institution, adapting rapidly to change. In fewer than 100 years it has changed its name three times--each transition marking a milestone in the institution's 20th century evolution.

Whether it was Carnegie Technical Schools, as it was in its first 12 years, Carnegie Institute of Technology, its name from 1912 to 1967, or Carnegie Mellon University, three primary purposes formed its foundation. Throughout this century, Carnegie Mellon has focused on delivering distinctive and first-quality education, fostering research, creativity and discovery, and using the new knowledge created on campus to serve our larger society.

When Arthur A. Hamerschlag served as the school's first president, Carnegie Technical Schools' 12 professors and six administrators sought to educate the sons and daughters of Pittsburgh workers for employment in the region's growing industries.

These educators served the vision of Carnegie by organizing into four faculties: the School of Science and Technology, the School of Fine and Applied Arts, the School of Apprentices and Journeymen, and the Margaret Morrison Carnegie School for Women.

In its earliest years, the institution served primarily part-time and undergraduate students. The faculty, many of whom did not have doctor's degrees, focused on teaching and curriculum development.

But research efforts began as early as 1916 when the Division of Applied Psychology of the Carnegie Institute of Technology developed rating scales for job placement. This rating system was used to classify two million men for placement in the armed forces during World War I. Research bureaus were organized in coal mining, nuclear physics, applied chemistry and metallurgy.

And by granting the nation's first undergraduate degree in drama in 1917, the institution began a tradition of leadership in the arts that spanned the century.

Through research and the education of its students during the administration of President Thomas S. Baker in the 1920s and '30s, the institution began its strong tradition of transferring knowledge and skills to industry and government.

Building on this firm foundation, the administration of President Robert E. Doherty introduced a new approach to education that would be used as a model by similar institutions around the nation. The Carnegie Plan for Professional Education, initiated in 1939-40, required engineering and science students to take a quarter of their courses in a new Humanistic and Social Relations sequence. In addition, its curriculum focused on teaching students problem-solving techniques, a hallmark of the Carnegie Mellon educational experience today.

While the Doherty administration has been credited with this educational innovation, it also oversaw growth in the institution's research capability. Between 1936 and 1950, the number of graduate students grew from 36 to more than 260. The research budget ballooned from $156,000 to $1 million.

In the 1950s, the newly formed Graduate School of Industrial Administration, endowed by William Larimer Mellon, emerged as one of the three or four best business schools in the nation. (In 2004 the school was renamed the David A. Tepper School of Business after benefactor and alumnus David Tepper (MBA '82).) Today, the school is recognized as a pioneer in the field of management science and one of the top business schools in the world.

The Warner administration oversaw the institution's burgeoning research enterprise. This period of research growth was aided by the work of the institution's Computation Center, founded in 1956 to provide computing services to the campus. A major grant from benefactor Richard K. Mellon in 1965 aided the establishment of a Computer Science Department, a department which would be the genesis of Carnegie Mellon's worldwide reputation in computer science.

By the end of the Warner administration and the start of the administration of President H. Guyford Stever in 1966, Carnegie Tech had most elements of a university. Its merger in 1967 with the Mellon Institute created Carnegie Mellon University and brought a $60 million endowment, extensive research facilities and renowned research personnel to the institution.

Five years later, President Richard M. Cyert (1972-90) began a tenure that was characterized by unparalleled growth and development. The university's research budget soared from about $12 million annually in the early 1970s to more than $110 million in the late 1980s. The work of researchers in new fields such as robotics and software engineering helped the university build on its reputation for innovative ideas and pragmatic solutions to the problems of industry and society. Carnegie Mellon began to be recognized as a truly national research university able to attract students from across the nation and around the world.

The Cyert administration stressed strategic planning and comparative advantage, pursuing opportunities in areas in which Carnegie Mellon could outdistance its competitors.

An archetypal example of this approach was the introduction of the university's "Andrew" computing network in the mid-1980s. This pioneering network, which linked all computers and workstations on campus, set the standard for educational computing and firmly established the university as a leader in the uses of technology in education and research.

Education and teaching also benefited in this period with the establishment of a University Teaching Center to improve faculty teaching and the renovation of many of the university's classrooms.

Cognizant of the university's heritage, President Robert Mehrabian (1990-97) invited alumni from the era of the institution's first president, Arthur A. Hamerschlag, to attend his inauguration in 1990. President Mehrabian emphasized Carnegie Mellon's traditional strengths in education, research and service to society while focusing on initiatives for leadership in the 21st century.

With the appointment of the university's first Vice Provost for Education, President Mehrabian placed renewed emphasis early in his administration on the quality of undergraduate education. He also moved aggressively to complete the most ambitious campus building plan since the Warner era. The University Center, which opened in August 1996, and the Purnell Center for the Arts, to be completed by the fall of 1999, are keys to enhancing the quality of life on campus, another priority of the Mehrabian administration.

Confronted by shrinking governmental support of university research, President Mehrabian diversified the university's research agenda. He stressed the need to build strong relationships with the business world, matching industry's needs with the university's areas of research strength. He also put new emphasis on productivity, improvement of administrative services and strategic management of university resources.

President Mehrabian established strong, new partnerships with the greater Pittsburgh community. He led a community-wide economic development initiative, spurred collaboration with primary and secondary schools, and worked closely with local community groups.

On April 15, 1997, Jared L. Cohon, former dean of Yale University's School of Forestry and Environmental Studies, was elected by the university's Board of Trustees to succeed President Mehrabian, who resigned to spend more time with his family in California.

"Since I was chosen, since this wonderful event has occurred, it has made me reflect on why you are choosing me," President Cohon said in his first speech to the university community. "And I've said to people since this was announced that the more I think about it, the more I realize how well I think this institution and I fit together. We'll see if that's true. I think it is.

"When I was at Johns Hopkins we used to always hold up Carnegie Mellon as an example," Cohon said. "So, for many years I've ... been jealous of what has been accomplished here across departmental lines. I celebrate that. I think it is so valuable in every aspect of this university and it will position Carnegie Mellon to be even better...."

During Cohon's presidency, Carnegie Mellon has continued its trajectory of innovation and growth. Today, President Cohon is leading implementation of a comprehensive strategic plan that aims to leverage the university's existing strengths to benefit society in the areas of biotechnology and the life sciences, information and security technology, environmental science and practices, the fine arts and humanities.

The university is also committed to broadening and enhancing undergraduate education to allow students to explore various disciplines while maintaining a core focus in their primary area of study. Realizing that today's graduates must understand international issues, Carnegie Mellon is committed to providing a global education for its students and is striving to expand its international offerings and to increase its presence on a global scale. Increasing diversity, in all aspects, and fostering the economic development of southwestern Pennsylvania, are also top priorities.

Over the years Carnegie Mellon's leaders have reflected Andrew Carnegie's original dedication and commitment to this institution. In his 1900 letter to the mayor of Pittsburgh establishing Carnegie Technical Schools, Andrew Carnegie wrote, "My heart is in the work." These words have been echoed by students, faculty and administrators throughout this century and they live on the Carnegie Mellon campus today.


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