Individual risk attitudes arise from noise in neurocognitive magnitude representations

Abstract

Humans are generally risk averse, preferring smaller certain over larger uncertain outcomes. Economic theories usually explain this by assuming concave utility functions. Here, we provide evidence that risk aversion can also arise from relative underestimation of larger monetary payoffs, a perceptual bias rooted in the noisy logarithmic coding of numerical magnitudes. We confirmed this with psychophysics and functional magnetic resonance imaging, by measuring behavioural and neural acuity of magnitude representations during a magnitude perception task and relating these measures to risk attitudes during separate risky financial decisions. Computational modelling indicated that participants use similar mental magnitude representations in both tasks, with correlated precision across perceptual and risky choices. Participants with more precise magnitude representations in parietal cortex showed less variable behaviour and less risk aversion. Our results highlight that at least some individual characteristics of economic behaviour can reflect capacity limitations in perceptual processing rather than processes that assign subjective values to monetary outcomes.