Tuesday, September 18, 2007

the neuroeconomics of greed

This paragraph has nothing to do with greed. (At least I hope not!) Christian Fellowship Center is hosting Dave Ramsey's Financial Peace University course again this fall. We meet Wednesdays 7 to 9 p.m. Tomorrow, Wednesday the 19th, will be the second of thirteen meetings. We should finish the course on December 12th.

The following has everything to do with greed. She sent me this last week from a Wells Fargo Daily Advantage newsletter:

Researchers in neuroeconomics study what happens in the human brain when we make economic decisions, and one of their findings is that the human brain is tremendously stimulated at the prospect of economic gain, i.e., "getting rich," "making a killing," "hitting paydirt," etc. In other words, when scientists scan the brain using MRI technology, they see the pleasure centers light up at the prospect of profit, just as they light up at the prospect of food, shelter, and safety. The reaction is so pronounced that it dwarfs the satisfaction we feel when we actually make the profit. In other words, we get a bigger rush from anticipating a gain than we get from realizing a gain.

Why should that be so? Who knows? Maybe we're all like cars in that it takes more energy to get us moving than to keep us moving. But we need to remember that while drag racing out of the traffic light may feel good, it doesn't necessarily end well. And the same is true of investing: The rush we feel at the prospect of gain may exist to get us up off the sofa and moving, but we also need to apply reason to guide the impulse. (The scientists say those pleasurable responses are a part of our "reflexive brain" and reasoning is part of our "reflective brain.")

The high we feel at the prospect of scoring big explains the enduring appeal of tip sheets and cable TV shows where people bellow like bulls and promise to make us all rich. And I feel it's okay to pay attention to those once things in a while, but keep your cool: Burning rubber out of a traffic light is one way to ruin, and jackrabbit investing is another.

Peter Nulty
Editor

This is from a review of a popular press book by Jason Zweig, Your Money & Your Brain: How the New Science of Neuroeconomics Can Help Make You Rich (Simon & Schuster). If interested please check out a discussion that appeared last week in USA TODAY.

Be blessed!
RB

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