What actual goes on inside our brains? How do we process and analyze information? Why are we all wired so differently?
I don’t know the answer to any of these questions, but thankfully there is a guy much smarter who does! Jason Zweig, a Wall Street columnist, wrote Money & Your Brain which goes through multiple neuroeconomics studies and discussions on how our brains react to different forms of stimulus (mostly gains and losses). Here are a couple highlights from his book:
• Losses and gains have profound physical effects on the body and brain. The physical and mental toll that financial stress can have on a person is incredible and can wear on a person’s body and psyche.
• Financial losses are processed in the same area of the brain that responds to mortal danger. And it is literally true that we can relive our financial loses in our sleep. This helps explain why losses hurt so much more than gains feel good. Loss aversion can be a huge problem for our long-term financial health if we let the mortal danger signal take over during a panic in the markets.
• The bigger the potential gain, the greedier you feel. This is regardless of how poor the odds of earning that gain might be. The anticipation for this gain evokes a much larger response than actually receiving the gain.
If you’d like to read the full article, click here!