FOR MOST PURPOSES IN DAILY LIFE, your brain is a superbly functioning machine, steering you away from danger while guiding you toward basic rewards like food, shelter and love. But that brilliant machine can lead you astray when it comes to investing. You buy high only to sell low. You try to time the market. You follow the crowd. You make the same mistakes again. And again. How come? We're beginning to get answers. Scientists in the emerging field
of"neuroeconomics"-a hybrid of neuroscience, economics arid psychology-are making stunning discoveries about how the brain evaluates rewards, sizes up risks and calculates probabilities. With the wonders of imaging technology we can observe the precise neural circuitry that switches on and off in your brain when you invest. Those pictures make it clear that your investing brain often drives you to do things that make no logical sense-but make perfect emotional sense. Your brain developed to improve our species' odds of survival. You, like every other human, are wired to crave what looks rewarding and shun what seems risky.To counteract these impulses, your brain has only a thin veneer of modern, analytical circuits that are often no match for the power of the ancient parts of your mind. And when you win, lose or risk money; you stir up some profound emotions, including hope, surprise, regret and the two we'll examine here: greed and fear. Understanding how those feelings-as a matter of biology-affect your decision-making will enable you to see as never before what makes you tick, and how you can improve, as an investor,
of"neuroeconomics"-a hybrid of neuroscience, economics arid psychology-are making stunning discoveries about how the brain evaluates rewards, sizes up risks and calculates probabilities. With the wonders of imaging technology we can observe the precise neural circuitry that switches on and off in your brain when you invest. Those pictures make it clear that your investing brain often drives you to do things that make no logical sense-but make perfect emotional sense. Your brain developed to improve our species' odds of survival. You, like every other human, are wired to crave what looks rewarding and shun what seems risky.To counteract these impulses, your brain has only a thin veneer of modern, analytical circuits that are often no match for the power of the ancient parts of your mind. And when you win, lose or risk money; you stir up some profound emotions, including hope, surprise, regret and the two we'll examine here: greed and fear. Understanding how those feelings-as a matter of biology-affect your decision-making will enable you to see as never before what makes you tick, and how you can improve, as an investor,
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