Hmm, does make one think about the issue of psychopathic corporations may have much more of a personal basis..??
On Thu, 2005-07-21 at 15:21 -0400, Cordell, Arthur: ECOM wrote: > Lessons From the Brain-Damaged Investor --- Unusual Study Explores > Links Between Emotion and Results; `Neuroeconomics' on Wall Street > 21 July 2005 > The Wall Street Journal > D1 > > > PEOPLE WITH certain kinds of brain damage may make better investment > decisions. That is the conclusion of a new study offering some > compelling evidence that mixing emotion with investing can lead to bad > outcomes. > > By linking brain science to investment behavior, researchers concluded > that people with an impaired ability to experience emotions could > actually make better financial decisions than other people under > certain circumstances. The research is part of a fast-growing > interdisciplinary field called "neuroeconomics" that explores the role > biology plays in economic decision making, by combining insights from > cognitive neuroscience, psychology and economics. The study was > published last month in the journal Psychological Science, and was > conducted by a team of researchers from Carnegie Mellon University, > the Stanford Graduate School of Business and the University of Iowa. > > The 15 brain-damaged participants that were the focus of the study had > normal IQs, and the areas of their brains responsible for logic and > cognitive reasoning were intact. But they had lesions in the region of > the brain that controls emotions, which inhibited their ability to > experience basic feelings such as fear or anxiety. The lesions were > due to a range of causes, including stroke and disease, but they > impaired the participants' emotional functioning in a similar manner. > > The study suggests the participants' lack of emotional responsiveness > actually gave them an advantage when they played a simple investment > game. The emotionally impaired players were more willing to take > gambles that had high payoffs because they lacked fear. Players with > undamaged brain wiring, however, were more cautious and reactive > during the game, and wound up with less money at the end. > > Some neuroscientists believe good investors may be exceptionally > skilled at suppressing emotional reactions. "It's possible that people > who are high-risk takers or good investors may have what you call a > functional psychopathy," says Antoine Bechara, an associate professor > of neurology at the University of Iowa, and a co-author of the study. > "They don't react emotionally to things. Good investors can learn to > control their emotions in certain ways to become like those people." > > The study demonstrates how neuroeconomics can offer insight into a > question that has become a growing focus of economic inquiry: Why > don't people always act in their own self-interest when they make > economic decisions? > > Though the field is still in its infancy, researchers hope > neuroeconomics could someday have dozens of real world applications -- > like explaining how brain chemistry influences market phenomena such > as bubble manias and investor panics. Wall Street executives already > are paying attention to the findings, since it offers insight into > what motivates investors. > > "This branch of inquiry and economic investigation is really > fortifying and buttressing our understanding of investor behavior," > says David Darst, chief investment strategist in the Individual > Investor Group at Morgan Stanley. "It's beginning to inform our > tactical decisions." > > Using sophisticated brain-imaging technology such as magnetic > resonance imaging, or MRI, tests and other tools, neuroeconomists peek > inside people's brains to see which regions are activated when we > engage in behaviors such as evaluating risks and rewards, making > choices and cooperating with other people. Neuroeconomic researchers > also tap into brain activity by measuring brain chemicals and > exploring how damage to specific brain regions impacts economic > decision making. > > Neuroeconomics grew out of a related field called behavioral > economics. Behavioral economists use insights from psychology and > other social sciences to explore why humans don't always behave as > predictably as standard economic models suggest they should. > > In the late 1990s, when the links between psychology and neurobiology > were firmly established, behavioral economists began turning to > neuroscientists, in addition to psychologists, for help explaining > human behavior. The idea was that if brain chemistry could explain > phenomena such as depression or attention deficit disorder, it might > also help explain more mundane psychological functions, such as how > people reach financial decisions. > > Behavioral economists, like Princeton's Daniel Kahneman, who won the > Nobel Prize for Economics in 2002, began teaming up with > neuroscientists, like Peter Shizgal at Concordia University in > Montreal. In one study, the pair used gambling games and neuroimaging > techniques to look what part of the brain is triggered when people > anticipate winning money. They found that monetary rewards trigger the > same brain activity as good tastes, pleasant music or addictive > drugs. > > The 41 participants in the new study included people with and without > brain damage, including a control group of participants with brain > damage that didn't affect their emotional processing. Players were > given $20 and asked to play a simple gambling game that involved 20 > rounds of coin tosses. If they won a coin toss, they earned $2.50. If > they lost the toss, they had to give up a dollar. They could choose > not to play in any given round, in which case they kept their dollar. > > Logic indicates that the best strategy was to take the gamble in every > round of the game, since the return on a win was much higher than the > potential loss, and the risk in each round was 50-50. The players with > emotion-related brain damage took a more logical strategy, investing > in 84% of rounds, while the nonbrain-damaged players invested in just > 58% of the rounds. Emotionally impaired participants outperformed the > nonbrain-damaged participants, winding up with an average of $25.70 > versus $22.80 at the end of the game. > > The researchers believe fear had a lot to do with the poor performance > of nonbrain-damaged participants. "If you just observe these people, > they know the right thing to do is invest in every single round," says > Baba Shiv, an associate professor of marketing at the Stanford > business school and a co-author of the study. "But when they actually > get into the game, they start reacting to the outcomes of the previous > rounds." > > Yet emotions may play a useful role in financial decision making. > While the brain-damaged players did well in the specific game in the > study, they didn't generally perform well when it came to making > financial decisions in the real world. Three of four of the > brain-damaged players had experienced personal bankruptcy. Their > inability to experience fear led to risk-seeking behavior, and their > lack of emotional judgment sometimes led them to get tangled up with > people who took advantage of them. Their life experience suggests > emotions can play an important role in protecting our interests, even > if they sometimes interfere with rational decision making. > > Humans developed this fear response as a survival mechanism to protect > against predators. But in a world where predators aren't lurking > around every corner, this fear system can be over-sensitive, reacting > to dangers that don't actually exist and pushing us toward illogical > choices. > > "There was no such thing as stock in the Pleistocene era," says George > Loewenstein, a professor of economics at Carnegie Mellon University, > and a co-author of the study. "But human beings are pathologically > risk averse. A lot of the mechanisms that drive our emotions aren't > really that well adapted to modern life." > > --- > > The Price of Fear > > A new study shows people with brain damage that impaired their ability to > experience emotions such as fear outperformed other people in an investment > game. > > -- The brain-damaged participants were more willing to take risks that > yielded high payoffs. > > -- They were less likely to react emotionally to losses. > > -- They finished the game with 13% more money than other players. > > > Document J000000020050721e17l0001u > > > _______________________________________________ > Futurework mailing list > [email protected] > http://fes.uwaterloo.ca/mailman/listinfo/futurework _______________________________________________ Futurework mailing list [email protected] http://fes.uwaterloo.ca/mailman/listinfo/futurework
