Is the difference between risk and uncertainty a fact about the world or a fact about our brains? I had always interpreted it as a statement about information sets: if something is "uncertain," that means that it may be worthwhile learning more about the situation, while risk is unavoidable risk...

Telegraph | Connected | When your gut instinct rules: Logic is the loser in uncertain situations, says Roger Highfield: Investing money, changing jobs, getting married: all big decisions that can mark a leap into the unknown. Now, a new brain-imaging study finds that the higher the level of uncertainty, the more likely it is that emotion and gut insinct, not logic, will rule. This insight into what goes on in the brain when decisions are made in the face of missing information sheds light on how people save for retirement, how companies price insurance and how countries evaluate risks, ranging from climate change to terrorist attack. Even ordering a strange-sounding dish at an exotic restaurant will summon the help of the same centre of the brain, one linked with handling emotions, which is different to the centre used when the brain weighs up known risks, such as the probability that a tossed coin will land heads up.

The "unknown risk" centre of the brain that acts when we face a decision laced with uncertainty has been pinpointed by "experimental economists" at the California Institute of Technology and the University of Iowa, led by Prof Colin Camerer. He says that the insights of these brain-scan studies complement the idea that emotions are "quick and dirty signals about survival-relevant upcoming events". Research shows that people are more comfortable with decisions where the risks are known, compared with ambiguous choices. Prof Camerer's team presented these "risk versus uncertainty" decisions to student volunteers in the form of a gambling game. The brain scans reported recently in the journal Science show that there is a definite difference in the brain when the wagers add a degree of ambiguity to the risk. In cases where the game involves a simple wager in which the chance of getting a pay-off is very clearly known, the dorsal striatum tends to light up. But in a nearly identical game in which the chances of winning are unknown, the more emotional parts of the brain known as the amygdala and orbitofrontal cortex (OFC) are involved.

The almond-shaped amygdala, found in each half of the brain, is linked with vigilance, fear and pleasure. As for the OFC, the structure is associated with the integration of emotional and cognitive input. The team suggests that the OFC and amygdala work together when a person is confronted with a wager for which the odds are unknown. The amygdala sends a "caution" message and the OFC processes the message. Patients at the University of Iowa, who had damage to the OFC, played the game entirely differently to the students and did not show the normal preference for risky rather than ambiguous decisions. Prof Camerer says this finding fits well with the observation that many have suffered due to reckless financial decisions and personal ones, such as bad marriages. Knowledge of what is happening to the neurons of the brain could lead to better understanding of wider social effects, he says. For example, in every country, investors hold too many shares they are familiar with, from their own countries, and do not diversify their holdings by buying more ambiguous foreign stocks. The opposite of fear of the economic unknown may be driving entrepreneurs, who often thrive under uncertainty.