Archive for the ‘money gene’ Category

money gene coming right up…

In bblonde, money gene on 07/28/2006 at 1:19 am

Prozac for money & sex coming soon to pharmacy near you…

The following sentence may sound like beginning of a Stephen King novel, but rest assured all true. Once upon a time late at night, in a basement laboratory at Stanford University, (sigh anyone who knows the state of basements at mcgill will understand why these discoveries are never made at mcgill, but we digress..) Brian Knutson made a startling discovery: Our brains lust after money, just like they crave sex.

This innocuous idea is currently sending shivers up spines of financiers and money brokers everywhere. For years economists and experts on Wall Street have propagated an unassailable idea that financial expertise is a learned behavior, much like say accounting, or law, or driving. The idea is enshrined in the economic theory of rational expectations, for which people have won Nobel Prizes for heaven’s sake (ie Robert Lucas in 1995).

For most of us it seems well.. logical that that when it comes to money, logic should prevail, that intellect matters in investing. Entire field of Economics, and lately Game Theory, is founded on the resolute principle that ‘experts’ in these disciplines possess invaluable experience that come primarily from knowledge learned and techniques applied along with ability to learn from past mistakes.

Well guess what. Welcome to the new world of neurofinance. (huh?)

The prefrontal cortex has a high number of interconnections both between the brainstem‘s Reticular Activating System (RAS) and the limbic system. As a result, the centers in the prefrontal cortex depend significantly on high levels of alertness, and emotional linkages with deeper brain structures related to control of pleasure, pain, anger, rage, panic, aggression (fight-flight-freeze responses), and basic sexual responses. Now we can add ‘financial risk responses’ to this list. The viceral pleasure of orgasm, the transient high from cocaine, the adrenaline rush of buying Google at $450 a share… the same neural pathways may in effect govern all three. What’s more, our primal pleasure circuits can, and often do, override our seat of reason, the brain’s frontal cortex. In other words, stocks, like sex, (and men) sometimes drive us crazy. And answers to questions like why some people win at ‘game’ of money and others perennially walk the loserslane may be found amidst the 96,000 km of neural wiring in our brainspace, rather than in books or colleges or Wall street brokerage houses.

Not to belabour the point, suffice it to simply quote Daniel Kahneman, who merely won the 2002 Nobel Prize in economics for his pioneering work in behavioral finance that fuses classical economic theory and studies of human psychology.

” The brain scientists are the wave of the future in the financial world… if you seek to maximize understanding, whether you’re in academia or in the investment community, you’d better pay very serious attention to them.”

” The brain scientists are the wave of the future in the financial world.”