An excerpt from “Your Money & Your Brain” by Jason Zweig
….Fortunately, over the past few years, scientists have made stunning discoveries about the ways the human brain evaluates rewards, sizes up risks, and calculates probabilities. With the wonders of imaging technology, we can now observe the precise neural circuitry that switches on and off in your brain when you invest.
Thanks to this new-born field – a hybrid of neuroscience, economics, and psychology – we can begin to understand what drives investing behaviour not only on the theoretical or practical level, but as a basic biological function.
The 100 billion neurons that are packed into that three-pound clump of tissue between your ears can generate an emotional tornado when you think about money.… When you win, lose, or risk money, you stir up some of the most profound emotions a human being can ever feel.
“Financial decision-making is not necessarily about money,” says psychologist Daniel Kahneman of Princeton University. “It’s also about intangible motives like avoiding regret or achieving pride.”
Investing requires you to make decisions using data from the past and hunches in the present about risks and rewards you will harvest in the future – filling you with feelings like hope, greed, cockiness, surprise, fear, panic, regret, and happiness.
That’s why this book is organized around the succession of emotions that most people pass through on the psychological rollercoaster of investing.
– your brain is at its best and worst, its most profoundly human, when you make decisions about money. And it’s not as if emotion is the enemy and reason is the ally of good financial decisions.
– Pure rationality with no feelings can be as bad for your portfolio as sheer emotion unchecked by reason.… These are the basic lessons that have emerged from neuroeconomics:
– a monetary loss or gain is not just a financial or psychological outcome, but a biological change that has profound effects on the brain and body;
– the neural activity of someone whose investments are making money is indistinguishable from that of someone who is high on cocaine or morphine;
– after two repetitions of a stimulus – like, say, a stock price that goes up one penny twice in a row – the human brain automatically, unconsciously, and uncontrollably expects a third repetition;
– once people conclude that an investment’s returns are ”predictable,” their brains respond with alarm if that apparent pattern is broken;
– financial losses are processed in the same areas of the brain that respond to mortal danger;
– anticipating a gain, and actually receiving it, are expressed in entirely different ways in the brain, helping to explain why “money does not buy happiness”;
– expecting both good and bad events is often more intense than experiencing them.
…everything you ever thought you knew about yourself is wrong….
What is your genetic fingerprint, what are your believes, your patterns ?
You don’t know where to start ?