Right now there are massive shake-ups with Merrill Lynch and Lehman Brothers, two big banking institutions. As of this morning stocks are plummeting. Many are wondering what the consequences could be for the average person.
That’s interesting because it parallels what researchers have discovered about the brains and behaviors of lottery players. In short: some of our fears and hopes drive straight into our oldest brain center. That makes us do foolish things.
A neuroeconomist conducted two experiments to examine whether making people feel poor makes them want to play the lottery. Results? The group given a reminder they were “poor” purchased 1.31 tickets, on average, as compared with 0.54 for those not given such a reminder. Read the entire article here.
Could news exposure to the big losses of Lehman Brothers and Merrill Lynch affect our brains in the same way? Most of us do not have personal stakes in these banking institutions. Many of us can hardly fathom their relative size and wealth. So why are stocks falling so sharply this morning? Maybe it’s our primitive, irrational brain. We’re sensing danger and so our modern response is to conserve our resources (our available investing funds) and as a result prices fall.
Also mentioned in the Scientific American article referenced above was the fact that using credit cards dulls the “pain” of actually paying for something. Psychologically, that makes it a lot easier to spend money.
For most of us who react to stocks and investing in similarly abstract terms, it’s easy to conclude that our brains impact some of our financial decisions, too. Our emotions affect our behaviors and our behaviors shape our wallets.
Related:
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