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The ventromedial frontal lobe (VMF) is important for decision-making, but the precise causal role of the VMF in the decision process has not been fully established. Previous studies have suggested that individuals with VMF damage violate transitivity, a hallmark axiom of rational decisions. However, these prior studies cannot properly distinguish whether individuals with VMF damage are truly prone to choosing irrationally from whether their preferences are simply more variable. We had individuals with focal VMF damage, individuals with other frontal damage, and healthy controls make repeated choices across three categories-artworks, chocolate bar brands, and gambles. Using proper tests of transitivity, we find that, in our study, individuals with VMF damage make rational decisions consistent with transitive preferences, even though they exhibit greater variability in their preferences. That is, the VMF is necessary for having strong and reliable preferences, but not for being a rational decision maker. VMF damage affects the variability with which value is assessed, but not the consistency with which value is sought.

People use information flexibly. They often combine multiple sources of relevant information over time in order to inform decisions with little or no interference from intervening irrelevant sources. They adjust the degree to which they use new information over time rationally in accordance with environmental statistics and their own uncertainty. They can even use information gained in one situation to solve a problem in a very different one. Learning flexibly rests on the ability to infer the context at a given time, and therefore knowing which pieces of information to combine and which to separate. We review the psychological and neural mechanisms behind adaptive learning and structure learning to outline how people pool together relevant information, demarcate contexts, prevent interference between information collected in different contexts, and transfer information from one context to another. By examining all of these processes through the lens of optimal inference we bridge concepts from multiple fields to provide a unified multi-system view of how the brain exploits structure in time to optimize learning.

Neuropsychological studies from the past century have associated damage to the ventromedial frontal lobes (VMF) with impairments in a variety of domains, including memory, executive function, emotion, social cognition, and valuation. A central question in the literature is whether these seemingly distinct functions are subserved by different sub-regions within the VMF, or whether VMF supports a broader cognitive process that is crucial to these varied domains. In this comprehensive review of the neuropsychological literature from the last two decades, we present a qualitative synthesis of 184 papers that have examined the psychological impairments that result from VMF damage. We discuss these findings in the context of several theoretical frameworks and advocate for the view that VMF is critical for the formation and representation of schema and cognitive maps.

Across many studies, ventromedial prefrontal cortex (vmPFC) activity has been found to correlate with subjective value during value-based decision-making. Recently, however, vmPFC has also been shown to reflect a hexagonal gridlike code during navigation through physical and conceptual space, and such gridlike codes have been proposed to enable value-based choices between novel options. Here, we first show that, in theory, a hexagonal gridlike code can in some cases mimic vmPFC activity previously attributed to subjective value, raising the possibility that the subjective value correlates previously observed in vmPFC may have actually been a misconstrued gridlike signal. We then compare the two accounts empirically, using fMRI data from a large number of subjects performing an intertemporal choice task. We find clear and unambiguous evidence that subjective value is a better description of vmPFC activity in this task than a hexagonal gridlike code. In fact, we find no significant evidence at all for a hexagonal gridlike code in vmPFC activity during intertemporal choice. This result limits the generality of gridlike modulation as description of vmPFC activity. We suggest that vmPFC may flexibly switch representational schemes so as to encode the most relevant information for the current task.

Though the ventromedial frontal lobes (VMF) are clearly important for decision-making, the precise causal role of the VMF in the decision process has still not yet fully been established. Previous studies have suggested that individuals with VMF damage violate a hallmark axiom of rational decisions by having intransitive preferences (i.e., preferring A to B, B to C, but C to A), as these individuals are more likely to make cyclical choices (i.e., choosing C over A after previously choosing A over B and B over C). However, these prior studies cannot properly distinguish between two possibilities regarding effects of VMF damage: are individuals with VMF damage prone to choosing irrationally, or are their preferences simply more variable? We had individuals with focal VMF damage, individuals with other frontal damage, and healthy controls make repeated choices across three categories – artwork, chocolate bar brands, and gambles. Using sophisticated tests of transitivity, we find that, without exception, individuals with VMF damage made rational decisions consistent with transitive preferences, even though they more frequently exhibit choice cycles due to a greater variability in their preferences across time. That is, the VMF is necessary for having strong and reliable preferences across time and context, but not for being a rational decision maker. We conclude that VMF damage affects the noisiness with which value is assessed, but not the consistency with which value is sought. Significance statement The VMF is a part of the brain that is thought to be one of the most important for preference-based choice. Despite this, whether it is needed to make rational choices at all is unknown. Previous studies have not discriminated between different possibilities regarding the critical necessary role that the VMF plays in value-based choice. Our study shows that individuals with VMF damage still make rational decisions consistent with what they prefer, but their choices are more variable and less reliable. That is, the VMF is important for the noisiness with which value is assessed, but not the consistency with which value is sought. This result has widespread implications for rethinking the role of VMF in decision-making.

Excessive discounting of future rewards has been related to a variety of risky behaviors and adverse clinical conditions. Prior work examining delay discounting in schizophrenia suggests an elevated discount rate. However, it remains uncertain whether this reflects the disease process itself or an underlying genetic vulnerability, whether it is selective for delay discounting or reflects pervasive changes in decision-making, and whether it is driven by specific clinical dimensions such as cognitive impairment. Here we investigated delay discounting, as well as loss aversion and risk aversion, in three groups: schizophrenia (SZ), unaffected first-degree family members (FM), and controls without a family history of psychosis (NC). SZ had elevated discounting, without changes in loss aversion or risk aversion. Contrary to expectations, the FM group did not show an intermediate phenotype in discounting. Higher discount rates correlated with lower cognitive performance on verbal reasoning, but this did not explain elevated discount rates in SZ. Group differences were driven primarily by the non-smoking majority of the sample. This study provides further evidence for elevated discounting in schizophrenia, and demonstrates that steeper discounting is not necessarily associated with familial risk, cannot be wholly accounted for by cognitive deficits, and is not attributable to smoking-related impulsivity.

This event study of market efficiency found that prices of Treasury Inflation-Protected Securities (TIPS) adjust to inflation information without delay during the U.S. Consumer Price Index (CPI) survey period and even before the beginning of the survey period. The cumulative effect of unexpected inflation on the TIPS holding period returns peaks at the end of the survey period. After the CPI announcement, there is no discernible price adjustment.

This study investigates the presence of information risk in two closely linked interest rate securities traded in separate markets: the nominal interest rate observed in the Treasury bond market and the real interest rate observed in the relatively new Treasury Inflation-Protected Securities (TIPS) market. We find that information flows unilaterally from the Treasury bond market to the TIPS market with a one-day lag. The information risk arising from asymmetric information flows may cause less informed traders to demand a higher rate of return (O’Hara, 2003). Our study provides an empirical explanation of why the TIPS yield has been relatively high throughout its nascent trading history.

During their last coupon period, Treasury Inflation-Indexed Securities (TIIS) are transformed from inflation-protection securities into Treasury bills due to the lag effect in indexing inflation. A study of the first issue of TIIS that matured on July 15, 2002, indicates that TIIS prices in the final six months convey useful information about the market9s assessment of inflation risk. TIIS prices reveal that the market was concerned more about disinflation than inflation during the first quarter of 2002. This special period of transformation also permits a controlled experiment of the market9s ability to aggregate information about inflation; TIIS prices efficiently reflect inflation information at the time inflation takes place.

Before the introduction of Treasury Inflation-Indexed Securities (TIIS) in January 1997, the ex ante real rate in the United States was unobservable. This study describes the new Treasury security and extracts from its price a time series of ex ante real pure discount rates with a constant 10-year maturity. The study then identifies an ex ante nominal rate time series counterpart. Empirical evidence from Johansen's cointegration analysis indicates that there exists a cointegrated system between the real and nominal rates. This finding casts doubt on the accuracy of tests of the Fisher effect that infer a constant or stationary real rate.

We consider a simple model positing that initial public offering price is equal to the present value of an entity's assets in place and growth opportunities. The model predicts that initial return is positively related to both the size and risk of growth opportunities. Consistent with this prediction, we find initial return to be positively related to both the fraction of the offer price that is accounted for by the present value of growth opportunities and various proxies of issue uncertainty. We also find that IPO investors equate one dollar of growth opportunities to approximately three quarters of tangible assets.