Money has a nice piece by Jason Zweig
on the behavior of investors, and more specifically on how greed and fear would be hardwired in the human brain and explain some common irrational decision making patterns.
Zweig describes an experiment which indicates that, while the possibility of receiving a larger gain is strongly exciting, actually receiving a larger gain is only marginally satisfying.
Why is it so hard for most of us to learn that the old saying "Money doesn't buy happiness" is true?
Our brains come equipped with a biological mechanism that is more aroused when we anticipate a profit than when we get one.
I lived through the rush of greed in an experiment run by Brian Knutson, a neuroscientist at Stanford University.
a display inside the fMRI machine showed me a sequence of shapes that each signaled a different amount of money
If the symbol was a circle, I could win the dollar amount displayed; if it was a square, I could lose the amount shown.
When Knutson measured the activity tracked by the scan, he found that the possibility of winning $5 set off twice as strong a signal in my brain as the chance at gaining $1 did.
On the other hand, learning the outcome of my actions was no big deal. Whenever I captured the reward, Knutson's scanner found that the neurons in my nucleus accumbens fired much less intensely than they had when I was hoping to get it.
Any person who has played the lottery knows this is true; and I could not help but think that monetary gifts or bonuses also fall in this category, for the opposite reason - I won't ever complain when receiving a bonus check, but somehow, in the back of my mind, I always end up imagining that the check could have been larger, not smaller...
Labels: Decision making