In order to control behavior in an adaptive manner the brain has to learn how some situations and actions predict positive or negative outcomes. During the last decade cognitive neuroscientists have shown that the brain is able to evaluate and learn from outcomes within a few hundred milliseconds of their occurrence. This research has been primarily focused on the feedback-related negativity (FRN) and the P3, two event-related potential (ERP) components that are elicited by outcomes. The FRN is a frontally distributed negative-polarity ERP component that typically reaches its maximal amplitude 250 ms after outcome presentation and tends to be larger for negative than for positive outcomes. The FRN has been associated with activity in the anterior cingulate cortex (ACC). The P3 (~300-600ms) is a parietally distributed positive-polarity ERP component that tends to be larger for large magnitude than for small magnitude outcomes. The neural sources of the P3 are probably distributed over different regions of the cortex. This paper examines the theories that have been proposed to explain the functional role of these two ERP components during outcome processing. Special attention is paid to extant literature addressing how these ERP components are modulated by outcome valence (negative vs. positive), outcome magnitude (large vs. small), outcome probability (unlikely vs. likely), and behavioral adjustment. The literature offers few generalizable conclusions, but is beset with a number of inconsistencies across studies. This paper discusses the potential reasons for these inconsistencies and points out some challenges that probably will shape the field over the next decade. © 2012 San Martin R.