Building a Program: Financial Economics

When Jaksa Cvitanic, Caltech's Richard N. Merkin Professor of Mathematical Finance, joined the faculty in 2005, he was a bit of an outlier. Caltech had a strong economics program, including a popular business and economics management option for undergraduates. But Cvitanic's research focus—financial economics, a branch of economics that studies financial markets, firms, and corporate financial decision making—was not well represented. Indeed, there was only one other faculty member doing similar research.

To Cvitanic, this was an opportunity: "The fact that I was somewhat isolated, as far as interest in finance goes, turned out to have positive consequences—it made me spend more time learning new things from my Caltech colleagues and collaborating with them," he says. "Ten years ago, I would not have guessed that I would be carefully reading research papers on neuroeconomics or political science, or that I would coauthor papers that involve experimental economics, as I have with Peter Bossaerts [a visiting associate and formerly Caltech's William D. Hacker Professor of Economics and Management and professor of finance] and Charles Plott [Caltech's William D. Hacker Professor of Economics and Political Science]."

Over the past three decades, financial economics has become an increasingly important academic field. While it borrows many tools and principles from economics, financial economics deals specifically with monetary activities—pricing, money flows, interest rates—rather than the factors governing the relationship of supply and demand. Its practitioners have produced innovations with real-world applications, such as stress tests for financial institutions and mathematical models to determine the pricing of risk and the valuation of future cash flows.

Financing can be done today in much more flexible and efficient ways than 30 years ago, partly due to innovations rooted in financial economics. Concepts such as mortgage securitization, interest rate swaps, and money market funds originated in academia during the 1970s as economists sought to combat the effects of that decade's recession. Recognizing the importance of this area to both academia and society, Caltech is developing a curriculum around the study of finance.

"Finance has long been a career where Caltech undergraduates and graduates have excelled, and we plan to offer the same research-based education that students can receive in other areas," says Jean-Laurent Rosenthal (PhD '88), the Rea A. and Lela G. Axline Professor of Business Economics and chair of the Division of the Humanities and Social Sciences. "Financial economics is important simply because our societies have become very capital intensive."

At the foundation of these efforts is The Ronald and Maxine Linde Institute of Economic and Management Sciences, Caltech's hub for research and education in business and economics, funded in 2011 by a gift of $12.3 million from trustee Ron Linde (MS '62, PhD '64) and his wife, Maxine. Financial economics has ties to diverse fields, including behavioral economics, neuroeconomics, applied mathematics, and computer science. These are fields in which Caltech traditionally excels, providing Linde Institute researchers with unique opportunities for interdisciplinary studies.

At Caltech, researchers take a rigorous analytical and statistical approach to finance. "There is no business school at Caltech, so the finance group is much more of a research area than a teaching place for MBAs and similar career-focused students," says Linde Institute Professor of Finance Richard Roll. Because of this approach, Roll says, students who originally trained in other disciplines, including physics and mathematics, are attracted to financial economics at Caltech.

Many of these former students, now with successful careers in finance, were attendees at the Linde Institute's "Caltech + Finance" inaugural symposium, which took place on May 1, 2015. The symposium, organized by Roll, opened with welcoming remarks from Ron Linde and featured three distinguished alumni speakers—Robert J. Barro (BS '65, physics), the Paul M. Warburg Professor of Economics at Harvard University; Nobel Laureate Robert C. Merton (MS '67, applied mathematics), the School of Management Distinguished Professor of Finance at MIT; and trustee Stephen A. Ross (BS '65, physics), the Franco Modigliani Professor of Financial Economic at MIT—who offered their insights as leaders in business finance and scholars of financial economics. 

Meanwhile, the diverse academic training and interests of Caltech's finance students can steer the faculty into new research areas. Cvitanic, for example, says that an undergraduate student-run "quantitative finance" group interested in algorithmic trading (in which trading is done using algorithms that execute pre-programmed instructions in response to particular variables like stock price and volume) and high-frequency trading (a type of algorithmic trading) coincided with his own interest in the area, and spurred him to write a paper on the topic.

Well-functioning economic systems are essential to successful economic growth. As those systems grow more complex, interconnected, and global, understanding how they function—and how they might function better—is increasingly important. Moreover, when shocks to economic systems occur, such as the Great Recession of 2008–09, all of the tools of scientific and financial innovation are needed to get markets back on track. "Caltech has long trained its students to be great problem solvers, to navigate complex systems, ask the right questions, and find innovative ways to address problems in science and engineering. With the Linde Institute we are making great strides to do the same for financial markets," says Rosenthal. Recent graduates in business, economics, and management have gone on to work in academic, corporate, and government sectors; some have joined investment banks, trading firms, consulting companies, hedge and investment funds, and regulatory agencies, and others have established their own businesses, or earned PhDs, or both.

"We bring the brightest students on the planet to study at Caltech, and we should be empowering their curiosity and talent wherever they lead," Rosenthal says.

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Senior Spotlight: Phoebe Ann

Caltech's class of 2015 is group of smart, creative, and curious individuals. They are analytical thinkers, performers, researchers, engineers, athletes, and leaders who are ready to apply the lessons they have learned from Caltech's rigorous academic environment and the unique experiences they had as part of this close-knit community to pursue future challenges. 

We talked to two of these graduates, Phoebe Ann and Justin Koch, about their years at Caltech and what will come next.

Other graduates share their stories in videos posted on Caltech's Facebook page.

Watch as they and their peers are honored at Caltech's 121st commencement on June 12 at 10 a.m. If you can't be in Pasadena, the ceremony will be live-streamed at http://www.ustream.tv/caltech. You may also follow the action and share your favorite commencement moments on Facebook, Twitter, and Instagram by using #Caltech2015 in your tweets and postings.

Phoebe Ann

Major: Biology and English
House: Lloyd
Hometown: Irvine, California

Why did you originally decide to come to Caltech?

I was attracted by the small class size, and I've found to this day that it is one of Caltech's strongest advantages. Caltech is also extremely supportive of a student's individual endeavors, as demonstrated by the numerous awards and programs that promote independent research, volunteer work, or extracurricular interest projects. The most significant example of this is the Caltech Y, through which I was able to learn how to implement a personal idea or passion into a tangible program that my fellow students and I can all enjoy.

Were you involved in extracurricular activities at Caltech?

My most significant extracurricular activities were implemented through the Caltech Y. My proudest accomplishments were organizing alternative spring break trips to New York for Hurricane Sandy relief and to Costa Rica for community construction. Prior to Caltech, I had never traveled independently, let alone led a group of students to a foreign country. These activities were absolutely crucial to developing myself into an effective community member and future physician.

What were your most memorable experiences?

Aside from my Caltech Y activities, my most memorable experiences were interactions with my fellow Lloydies during freshman year. It was an exciting time of realizing my similarities and differences with others, as well as my ability to function without sleep.

What did you not know about Caltech that you learned after being here?

I did not know how hard Caltech pushed its students. I struggled tremendously upon arriving at Caltech because I was intimidated by all the students who seemed "naturally" intelligent. But Caltech forced me to just shut up and get to work. And when all was said and done, I was able to accomplish so much more than I had ever imagined.

What will you be doing after Caltech?

I will be studying medicine at Feinberg Medical School at Northwestern University in Chicago. After, I would like to be a surgeon or a pediatrician, depending on how well I can maintain a work-life balance.

Any words of advice to incoming students?

Join the Caltech Y! It is critical not only to find a work-life balance outside of the house system, but also to ground your scientific endeavors in a broader purpose: to serve and better your local, national, and international community.

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Diversity Retreat at Caltech

In September 2013, Caltech, UC Berkeley, UCLA, and Stanford University founded a new consortium—the California Alliance for Graduate Education and the Professoriate (AGEP)—to support underrepresented minority graduate students in the STEM fields of mathematics, the physical sciences, computer science, and engineering. The Alliance, launched through a grant from the National Science Foundation, was created to address the fact that minority students enter STEM fields in disproportionately low numbers and that, as a group, their progress slows at each step in their academic careers.

This April, Caltech was host to "The Next Generation of Researchers," the Alliance's second annual retreat. The retreats are designed to bring together graduate students, postdoctoral fellows, research scientists, and faculty from the four institutions and national labs in California for mentoring and network-building opportunities.

We recently spoke with Joseph E. Shepherd (PhD '81), dean of graduate studies and the C. L. "Kelly" Johnson Professor of Aeronautics and professor of mechanical engineering, about AGEP, the recent retreat, and Caltech's diversity initiatives.

 

What was Caltech's motivation for entering into the California Alliance, and what has the program accomplished so far?

Caltech joined the Alliance to encourage underrepresented minorities to pursue academic careers in mathematics, physical science, computer science, and engineering fields. We seek to not only diversify our own campuses (Caltech, Berkeley, Stanford, and UCLA) but also contribute to diversity throughout the nation.

During the first year, the Alliance members identified participants at the four campuses. We have conducted two retreats—the first at Stanford University in 2014 and the second at Caltech. Graduate students, postdoctoral scholars, and faculty gathered at these retreats and learned about opportunities and challenges for underrepresented minority students transitioning from graduate studies to a career as a faculty member.

In 2014, the Alliance established a postdoctoral scholar fellowship program, accepted applications in the fall, and is in the process of finalizing awards for this coming academic year (2015–16). The Alliance has also accepted applications for the mentor-matching program through which graduate students can visit faculty at Alliance institutions to learn about opportunities and faculty careers in specific research areas.

 

AGEP programs are funded by the NSF. What are they hoping to achieve through these programs?

The AGEP programs were originated at NSF as a response to the recognition of the obstacles that underrepresented minority students faced in graduate education and advancing to faculty careers. These issues are highlighted in "Losing Ground," a 1998 report of a study led by Dr. Shirley Malcom, director of Education and Human Resources Programs of the American Association for the Advancement Science. Dr. Malcolm is a Caltech trustee and was a featured speaker at our 2015 retreat.

 

What are we doing at Caltech to support underrepresented minority students in the graduate sciences, and has anything at Caltech changed as a result of our involvement in this consortium?

The Caltech Center for Diversity has a number of programs that support various segments of our student population, and we are increasing the number of underrepresented minority postdoctoral scholars at Caltech.

In collaboration with several offices across the campus, we are developing and maintaining a strong network focused on outreach, recruitment, matriculation, and the eventual awarding of degrees to underrepresented minorities in the campus' graduate programs.  

Specifically, the Office of Graduate Studies, the Center for Diversity, and the Center for Teaching, Learning, and Outreach focus on programming that creates access to resources, builds community, and leverages relationships to help to address the challenges highlighted in the AGEP program, including facilitated discussion groups that address issues of inclusion and equality, various graduate student clubs that promote cultural awareness and community education, and an annual "Celebration of Excellence" reception to recognize student successes and the efforts of staff, faculty, and students who promote equity and inclusion on campus.

In addition, the graduate recruitment initiative coordinated by the Office of Graduate Studies works to ensure that the campus is able to recruit at underrepresented minority STEM-focused conferences and research meetings around the United States, and encourages graduate student ambassadorship and provides opportunities for underrepresented minority graduate students to network across national professional communities with similar research and academic interests.

 

What can we do better?

Encourage greater diversity in graduate admissions by identifying and recruiting underrepresented minority graduate students and ensuring that every student thrives at Caltech. Encourage more of the current underrepresented minority students and postdoctoral scholars at Caltech to take advantage of the professional development opportunities in the Alliance and facilitate their transition to the next stage of their academic careers. Provide more professional development opportunities for all Caltech students and postdoctoral scholars to learn about academic careers.

 

What was the goal of this year's annual retreat?

One goal was to promote introductions and discussion among students, postdoctoral scholars, and faculty at the Alliance schools. In addition to informal meetings between participants, we held a number of roundtables and panel discussions on topics such as knowing what to expect of grad school, the postdoctoral experience, and, in general, life as a researcher and faculty member. Our retreat highlighted the research between done by faculty, students, and postdoctoral scholars in the Alliance by holding a poster session that enabled the participants to learn about each other's research activity. The retreat participants learned about some of the exciting research being done in protein design at Caltech from the other featured speaker, Steve Mayo (PhD '88), Caltech's William K. Bowes Jr. Leadership Chair of the Division of Biology and Biological Engineering and Bren Professor of Biology and Chemistry.

 

Who were participants in this year's retreat, and what do you think they gained from the program?

There were a total of 111 attendees: 40 percent were faculty, 42 percent were graduate students, 8 percent postdoctoral scholars, and the remainder were staff members, including some from JPL and Sandia National Laboratory.

The participants were recruited by the Alliance leadership at each university. The student participants gained the opportunity to network with scientists and faculty at other Alliance institutions, learned about academic careers and postdoctoral scholar opportunities, and were able engage in wide-ranging discussions about careers in science. The faculty and staff participants were able to provide information and advice to students as well as learn about prospective postdoctoral scholars and faculty members.

In addition, a total of 18 faculty from Caltech participated out of a total of 43 faculty members who attended from all four Alliance universities. The faculty at Caltech are very positive about this program, and we are encouraged by the high level of participation.

 

Were the sessions specifically focused on the particular needs of underrepresented groups?

The focus of the Alliance is on helping young people from diverse backgrounds to consider and succeed in academic careers in science. Many of the issues that contribute to success or failure in academic science careers do not depend on the particular perspective or background of a prospective postdoctoral scholar or professor. The pathway to the professoriate and the mechanics of succeeding in an academic career are far from obvious, particularly for students with disadvantaged backgrounds as well as those who are the first in their family to obtain a college degree or consider a career in science. One of the important roles of the Alliance retreat is in providing information about the many career aspects to which our student participants are exposed early enough in their careers so that it may make a difference. 

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Kathy Svitil
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Behavior Matters: Redesigning the Clinical Trial

When a new type of drug or therapy is discovered, double-blind randomized controlled trials (DBRCTs) are the gold standard for evaluating them. These trials, which have been used for years, were designed to determine the true efficacy of a treatment free from patient or doctor bias, but they do not factor in the effects that patient behaviors, such as diet and lifestyle choices, can have on the tested treatment.

A recent meta-analysis of six such clinical trials, led by Caltech's Erik Snowberg, professor of economics and political science, and his colleagues Sylvain Chassang from Princeton University and Ben Seymour from Cambridge University, shows that behavior can have a serious impact on the effectiveness of a treatment—and that the currently used DBRCT procedures may not be able to assess the effects of behavior on the treatment. To solve this, the researchers propose a new trial design, called a two-by-two trial, that can account for behavior–treatment interactions.

The study was published online on June 10 in the journal PLOS ONE.

Patients behave in different ways during a trial. These behaviors can directly relate to the trial—for example, one patient who believes in the drug may religiously stick to his or her treatment regimen while someone more skeptical might skip a few doses. The behaviors may also simply relate to how the person acts in general, such as preferences in diet, exercise, and social engagement. And in the design of today's standard trials, these behaviors are not accounted for, Snowberg says.

For example, a DBRCT might randomly assign patients to one of two groups: an experimental group that receives the new treatment and a control group that does not. As the trial is double-blinded, neither the subjects nor their doctors know who falls into which group. This is intended to reduce bias from the behavior and beliefs of the patient and the doctor; the thinking is that because patients have not been specifically selected for treatment, any effects on health outcomes must be solely due to the treatment or lack of treatment.

Although the patients do not know whether they have received the treatment, they do know their probability of getting the treatment—in this case, 50 percent. And that 50 percent likelihood of getting the new treatment might not be enough to encourage a patient to change behaviors that could influence the efficacy of the drug under study, Snowberg says. For example, if you really want to lose weight and know you have a high probability—say 70 percent chance—of being in the experimental group for a new weight loss drug, you may be more likely to take the drug as directed and to make other healthy lifestyle choices that can contribute to weight loss. As a result, you might lose more weight, boosting the apparent effectiveness of the drug.

However, if you know you only have a 30 percent chance of being in the experimental group, you might be less motivated to both take the drug as directed and to make those other changes. As a result, you might lose less weight—even if you are in the treatment group—and the same drug would seem less effective.

"Most medical research just wants to know if a drug will work or not. We wanted to go a step further, designing new trials that would take into account the way people behave. As social scientists, we naturally turned to the mathematical tools of formal social science to do this," Snowberg says.

Snowberg and his colleagues found that with a new trial design, the two-by-two trial, they can tease out the effects of behavior and the interaction of behavior and treatment, as well as the effects of treatment alone. The new trial, which still randomizes treatment, also randomizes the probability of treatment—which can change a patient's behavior.

In a two-by-two trial, instead of patients first being assigned to either the experimental or control groups, they are randomly assigned to either a "high probability of treatment" group or a "low probability of treatment" group. The patients in the high probability group are then randomly assigned to either the treatment or the control group, giving them a 70 percent chance of receiving the treatment. Patients in the low probability group are also randomly assigned to treatment or control; their likelihood of receiving the treatment is 30 percent. The patients are then informed of their probability of treatment.

By randomizing both the treatment and the probability of treatment, medical researchers can quantify the effects of treatment, the effects of behavior, and the effects of the interaction between treatment and behavior. Determining each, Snowberg says, is essential for understanding the overall efficacy of treatment.


Credit: Sylvain Chassang, Princeton University

"It's a very small change to the design of the trial, but it's important. The effect of a treatment has these two constituent parts: pure treatment effect and the treatment–behavior interaction. Standard blind trials just randomize the likelihood of treatment, so you can't see this interaction. Although you can't just tell someone to randomize their behavior, we found a way that you can randomize the probability that a patient will get something that will change their behavior."

Because it is difficult to implement new trial design changes in active trials, Snowberg and his colleagues wanted to first test their idea with a meta-analysis of data from previous clinical trials. They developed a way to test this idea by coming up with a new mathematical formula that can be used to analyze DBRCT data. The formula, which teases out the health outcomes resulting from treatment alone as well as outcomes resulting from an interaction between treatment and behavior, was then used to statistically analyze six previous DBRCTs that had tested the efficacy of two antidepressant drugs, imipramine (a tricyclic antidepressant also known as Tofranil) and paroxetine (a selective serotonin reuptake inhibitor sold as Paxil).

First, the researchers wanted to see if there was evidence that patients behave differently when they have a high probability of treatment versus when they have a low probability of treatment. The previous trials recorded how many patients dropped out of the study, so this was the behavior that Snowberg and his colleagues analyzed. They found that in trials where patients happened to have a relatively high probability of treatment—near 70 percent—the dropout rate was significantly lower than in other trials with patients who had a lower probability of treatment, around 50 percent.

Although the team did not have any specific behaviors to analyze, other than dropping out of the study, they also wanted to determine if behavior in general could have added to the effect of the treatments. Using their statistical techniques, they determined that imipramine seemed to have a pure treatment effect, but no effect from the interaction between treatment and behavior—that is, the drug seemed to work fine, regardless of any behavioral differences that may have been present.

However, after their analysis, they determined that paroxetine seemed to have no effect from the treatment alone or behavior alone. However, an interaction between the treatment and behavior did effectively decrease depression. Because this was a previously performed study, the researchers cannot know which specific behavior was responsible for the interaction, but with the mathematical formula, they can tell that this behavior was necessary for the drug to be effective.

In their paper, Snowberg and his colleagues speculate how a situation like this might come about. "Maybe there is a drug, for instance, that makes people feel better in social situations, and if you're in the high probability group, then maybe you'd be more willing to go out to parties to see if the drug helps you talk to people," Snowberg explains. "Your behavior drives you to go to the party, and once you're at the party, the drug helps you feel comfortable talking to people. That would be an example of an interaction effect; you couldn't get that if people just took this drug alone at home."

Although this specific example is just speculation, Snowberg says that the team's actual results reveal that there is some behavior or set of behaviors that interact with paroxetine to effectively treat depression—and without this behavior, the drug appears to be ineffective.

"Normally what you get when you run a standard blind trial is some sort of mishmash of the treatment effect and the treatment-behavior interaction effect. But, knowing the full interaction effect is important. Our work indicates that clinical trials underestimate the efficacy of a drug where behavior matters," Snowberg says. "It may be the case that 50 percent probability isn't high enough for people to change any of their behaviors, especially if it's a really uncertain new treatment. Then it's just going to look like the drug doesn't work, and that isn't the case."

Because the meta-analysis supported the team's hypothesis—that the interaction between treatment and behavior can have an effect on health outcomes—the next step is incorporating these new ideas into an active clinical trial. Snowberg says that the best fit would be a drug trial for a condition, such as a mental health disorder or an addiction, that is known to be associated with behavior. At the very least, he says, he hopes that these results will lead the medical research community to a conversation about ways to improve the DBRCT and move past the current "gold standard."

These results are published in a paper titled "Accounting for Behavior in Treatment Effects: New Applications for Blind Trials." Cayley Bowles, a student in the UCLA/Caltech MD/PhD program, was also a coauthor on the paper. The work was supported by funding to Snowberg and Chassang from the National Science Foundation.

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Tuesday, May 26, 2015 to Friday, May 29, 2015
Center for Student Services 360 (Workshop Space) – Center for Student Services

CTLO Presents Ed Talk Week 2015

Ditch Day? It’s Today, Frosh!

Today we celebrate Ditch Day, one of Caltech's oldest traditions. During this annual spring rite—the timing of which is kept secret until the last minute—seniors ditch their classes and vanish from campus. Before they go, however, they leave behind complex, carefully planned out puzzles and challenges—known as "stacks"—designed to occupy the underclassmen and prevent them from wreaking havoc on the seniors' unoccupied rooms.

Follow the action on Caltech's Facebook, Twitter, and Instagram pages as the undergraduates tackle the puzzles left for them to solve around campus. Join the conversation by sharing your favorite Ditch Day memories and using #CaltechDitchDay in your tweets and postings.

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Friday, May 1, 2015

Caltech + Finance Symposium

Monday, May 18, 2015
Brown Gymnasium – Scott Brown Gymnasium

Jupiter’s Grand Attack

Monday, May 4, 2015
Dabney Hall, Lounge – Dabney Hall

Free Jazz Concert

Switching On One-Shot Learning in the Brain

Caltech researchers find the brain regions responsible for jumping to conclusions

Most of the time, we learn only gradually, incrementally building connections between actions or events and outcomes. But there are exceptions—every once in a while, something happens and we immediately learn to associate that stimulus with a result. For example, maybe you have had bad service at a store once and sworn that you will never shop there again.

This type of one-shot learning is more than handy when it comes to survival—think, of an animal quickly learning to avoid a type of poisonous berry. In that case, jumping to the conclusion that the fruit was to blame for a bout of illness might help the animal steer clear of the same danger in the future. On the other hand, quickly drawing connections despite a lack of evidence can also lead to misattributions and superstitions; for example, you might blame a new food you tried for an illness when in fact it was harmless, or you might begin to believe that if you do not eat your usual meal, you will get sick.

Scientists have long suspected that one-shot learning involves a different brain system than gradual learning, but could not explain what triggers this rapid learning or how the brain decides which mode to use at any one time.

Now Caltech scientists have discovered that uncertainty in terms of the causal relationship—whether an outcome is actually caused by a particular stimulus—is the main factor in determining whether or not rapid learning occurs. They say that the more uncertainty there is about the causal relationship, the more likely it is that one-shot learning will take place. When that uncertainty is high, they suggest, you need to be more focused in order to learn the relationship between stimulus and outcome.

The researchers have also identified a part of the prefrontal cortex—the large brain area located immediately behind the forehead that is associated with complex cognitive activities—that appears to evaluate such causal uncertainty and then activate one-shot learning when needed.

The findings, described in the April 28 issue of the journal PLOS Biology, could lead to new approaches for helping people learn more efficiently. The work also suggests that an inability to properly attribute cause and effect might lie at the heart of some psychiatric disorders that involve delusional thinking, such as schizophrenia.

"Many have assumed that the novelty of a stimulus would be the main factor driving one-shot learning, but our computational model showed that causal uncertainty was more important," says Sang Wan Lee, a postdoctoral scholar in neuroscience at Caltech and lead author of the new paper. "If you are uncertain, or lack evidence, about whether a particular outcome was caused by a preceding event, you are more likely to quickly associate them together."

The researchers used a simple behavioral task paired with brain imaging to determine where in the brain this causal processing takes place. Based on the results, it appears that the ventrolateral prefrontal cortex (VLPFC) is involved in the processing and then couples with the hippocampus to switch on one-shot learning, as needed.

Indeed, a switch is an appropriate metaphor, says Shinsuke Shimojo, Caltech's Gertrude Baltimore Professor of Experimental Psychology. Since the hippocampus is known to be involved in so-called episodic memory, in which the brain quickly links a particular context with an event, the researchers hypothesized that this brain region might play a role in one-shot learning. But they were surprised to find that the coupling between the VLPFC and the hippocampus was either all or nothing. "Like a light switch, one-shot learning is either on, or it's off," says Shimojo.

In the behavioral study, 47 participants completed a simple causal-inference task; 20 of those participants completed the study in the Caltech Brain Imaging Center, where their brains were monitored using functional Magnetic Resonance Imaging. The task consisted of multiple trials. During each trial, participants were shown a series of five images one at a time on a computer screen. Over the course of the task, some images appeared multiple times, while others appeared only once or twice. After every fifth image, either a positive or negative monetary outcome was displayed. Following a number of trials, participants were asked to rate how strongly they thought each image and outcome were linked. As the task proceeded, participants gradually learned to associate some of the images with particular outcomes. One-shot learning was apparent in cases where participants made an association between an image and an outcome after a single pairing.

The researchers hypothesize that the VLPFC acts as a controller mediating the one-shot learning process. They caution, however, that they have not yet proven that the brain region actually controls the process in that way. To prove that, they will need to conduct additional studies that will involve modifying the VLPFC's activity with brain stimulation and seeing how that directly affects behavior.

Still, the researchers are intrigued by the fact that the VLPFC is very close to another part of the ventrolateral prefrontal cortex that they previously found to be involved in helping the brain to switch between two other forms of learning—habitual and goal-directed learning, which involve routine behavior and more carefully considered actions, respectively. "Now we might cautiously speculate that a significant general function of the ventrolateral prefrontal cortex is to act as a leader, telling other parts of the brain involved in different types of behavioral functions when they should get involved and when they should not get involved in controlling our behavior," says coauthor John O'Doherty, professor of psychology and director of the Caltech Brain Imaging Center.

The work, "Neural Computations Mediating One-Shot Learning in the Human Brain," was supported by the National Institutes of Health, the Gordon and Betty Moore Foundation, the Japan Science and Technology Agency–CREST, and the Caltech-Tamagawa global Center of Excellence.

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