Abstract
While mainstream economic models assume that individuals treat probabilities objectively, many people tend to overestimate the likelihood of improbable events and underestimate the likelihood of probable events. However, a biological account for why probabilities would be treated this way does not yet exist. While undergoing fMRI, we presented individuals with a series of lotteries, defined by the voltage of an impending cutaneous electric shock and the probability with which the shock would be received. During the prospect phase, neural activity that tracked the probability of the expected outcome was observed in a circumscribed network of brain regions that included the anterior cingulate, visual, parietal, and temporal cortices. Most of these regions displayed responses to probabilities consistent with nonlinear probability weighting. The neural responses to passive lotteries predicted 79% of subsequent decisions when individuals were offered choices between different lotteries, and exceeded that predicted by behavior alone near the indifference point.