The University Record, April 1, 2002

Anatomy of a gamble: Our brains choose risk after losses

By Diane Swanbrow
News and Information Services

Psychologist William Gehring looks on as a subject, wearing an electrode ‘cap’ to measure the brain’s electrical activity, begins the gambling trials. (Photo by Martin Vloet, U-M Photo Services)
Within about a quarter of a second after we see the outcome of a gamble, our brains have processed whether we’ve won or lost, according to a U-M study published in the March edition of Science. Moreover, choices about the next wager made a few seconds after losses are riskier than choices made after gains, the study found, providing an apparent neurological counterpart of the gambler’s fallacy—the misguided belief that a win is bound to follow a string of losses.

The study, conducted by psychologists William J. Gehring and Adrian R. Willoughby, confirms the unsettling existence of neurological activity that quickly, automatically and unconsciously evaluates the significance of choices we have made, then guides our subsequent decision-making.

The findings have implications for many quick decisions beyond those made in gambling casinos—including choices routinely made by pilots responding to cockpit indicators, traders checking stock prices, and physicians, policemen or firefighters faced with life-threatening emergencies.

“The findings suggest that in many situations our brains rush to judgment,” Gehring says. “They rapidly evaluate whether events are good or bad, and this judgment influences how we react.” While economists have tended to assume that people make rational decisions, Gehring points out, psychologists have long recognized that human decision-making is often irrational. Still, Gehring says, he was surprised by how quickly the brain reacted to gain or loss—within 265 milliseconds of seeing the outcome of a decision—and by how strongly the gain or loss influenced the next choice people made a few seconds later.

For the study Gehring, an assistant professor of psychology, and Willoughby, a doctoral student, used a measure of the brain’s electrical activity known as event-related brain potentials (ERPs). Subjects, who wore electrode caps, were asked to pick one of two numbers (5 or 25) during 24 blocks of 32 trials—making 768 gambling decisions in all. A second after they picked a number, the background changed to green for a win and red for a loss, then a few seconds later subjects were faced with another choice. After each pick, subjects won or lost 5 or 25 cents.

Analyzing the ERPs during this process, the researchers found a characteristic pattern of negative-polarity electrical activity that peaked about one-quarter of a second after participants learned whether they had won or lost. This ERP originated in the medial frontal cortex, they found, either in or near the anterior cingulate cortex—a place deep in the brain behind the upper part of the forehead.

Previous work by Gehring and others has shown that similar ERPs are produced when subjects make errors. But in the design of the current experiment, the researchers structured the gambling trials so that subjects could see what they would have gained or lost had they selected the other choice available to them. Making the other choice sometimes would have resulted in a loss greater than the loss subjects actually incurred, or a gain greater than the one they actually obtained. Yet the researchers found that ERPs emanating from deep in the brain were triggered only by losses, not when subjects failed to choose the larger of two possible gains.

The researchers also found that the brain’s electrical activity, as well as the subject’s subsequent choices, were influenced by their history of gains and losses over the course of the trials. There were no rules to learn—subjects could choose either 5 cents or 25 cents on each trial. But choosing 25 was riskier because the potential loss was greater; while winning yielded a 25 cent gain, losing yielded a 25 cent loss. After a loss, the subjects were more likely to choose 25, and they showed greater negative-polarity electrical activity in the medial frontal region of the brain.

“This finding suggests that at some basic, neurological level, losses really do loom larger than gains,” Gehring says. “After a loss, the brain thinks it’s due for a win. As a result, when we make a quick decision and it turns out to be wrong, we tend to take a bigger risk the next time out than we would have done if our first choice would’ve been right, and we can evaluate the outcomes of these decisions before we’ve even consciously thought about what we’re doing.”