Impaired emotion perception is a core deficit in schizophrenia (SCZ) that is robustly associated with poor functional outcome. Studies to date have failed to delineate the critical cognitive, neural and genetic factors that underlie 'naturalistic' emotion perception deficits in SCZ. Recently it has been proposed that in SCZ reduced precision in prior expectations impairs perception. Normal perception relies on predictive processing from precise prior expectations, which prioritise attention to context-relevant stimuli. However, no studies to date have explored the aberrancy of prior expectations during naturalistic emotion perception in SCZ and the underlying abnormal neural circuitry or involvement of SCZ genes. The present thesis aims to develop a novel dynamic emotion perception (DEP) task, in order to examine (1) the influence of prior expectations on naturalistic emotion perception in healthy individuals, and (2) emotion perception impairment in SCZ by investigating aberrancy in prior expectations, neural circuitry, and genetics.The aim of Study 1 was to create a novel functional magnetic resonance imaging (fMRI) paradigm to examine the mechanisms of prior expectations and delineate the spatiotemporal activity of brain regions that contribute to emotion perception. The newly developed and validated fMRI DEP task has improved ecological validity, using dynamic, audio-visual videos, instead of static pictures as stimuli. The improved method provided new behavioural and neuroimaging insights into the influence of prior expectations on naturalistic emotion perception. Prior expectations facilitated emotion perception after repeated exposure and learning over the course of the experiment, engaging prefrontal regions and right amygdala. In contrast, emotions incongruent with prior expectations engaged neural correlates of automatic change detection, which in a complex dynamic environment allows for adaptive behaviours in potentially advantageous or threatening situations.In Study 2, the DEP task was utilised to delineate, in the healthy brain, the functional networks that subserve rapid recognition of threatening emotions in situations either congruent or incongruent with prior expectations. The results showed that fast detection of threat congruent with prior expectations engaged a right amygdala subcortical network, which has been previously implicated in fear conditioning and coarse processing of emotion. In contrast, there was a trend association between fast detection of threat incongruent with prior expectations and activity in inferior frontoparietal network connected to the right temporoparietal junction; this has been previously implicated in rapid reorienting of attention to Finally, in Study 4, the association between SCZ polygenic risk score (PRS) and brain activity during the DEP task in healthy adults was investigated in order to assess emotion perception as an endophenotype for SCZ. The results demonstrate that PRS is associated with higher recruitment of regions involved in emotion regulat...