Theoretical Foundations and Future Directions in Neuro-finance Research

Neuro-finance represents an emerging interdisciplinary field that merges finance, neuroscience, and psychology to investigate how individuals make financial decisions under uncertainty. Unlike traditional models that assume rationality, neuro-finance recognizes the critical role of emotion, cognitive bias, and neural mechanisms in shaping investor behavior. Drawing upon insights from 18 foundational studies, including prominent research by Lo and Repin (2002) on traders' emotional responses, Knutson et al. (2005) on brain activity related to risk assessment, and Zak (2007) regarding hormonal influences on trust, this paper synthesizes the current theoretical landscape of neuro-finance. It highlights key methodologies such as EEG and fMRI, which provide empirical evidence linking neural activities with investment behavior, and identifies significant gaps, such as the need for field-based EEG studies and deeper exploration into emerging financial markets like cryptocurrencies, for future empirical exploration. We conclude by offering a research agenda aimed at advancing the scientific and practical implications of neuro-finance.