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Risk Perception and Management
Abstract
This chapter provides an exploration of the decision-making processes associated with risk perception and management through the lens of neuroscience and behavioural finance. Drawing upon neuroimaging studies and empirical research, it elucidates how individuals comprehend and react to risks in both financial and non-monetary contexts. A comprehensive literature review highlights the significant influence of emotional and cognitive biases, including loss aversion, overconfidence, and anchoring effects, on risk-related behaviours, evidenced by the activation of specific neural correlates such as the amygdala, prefrontal cortex, and striatum. Furthermore, the chapter discusses the role of cultural and social determinants—particularly collectivist orientations—on risk-taking behaviours and the variance in activity within the ventromedial prefrontal cortex. Consequently, a novel framework for risk management is proposed, tailored to align with human neurocognitive limitations.
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