iklan

Tuesday, November 16

emotion in investing

Falling in intense love is often associated with some aspect of threat, fear, worry or shared anxiety. In other words, sometimes smart neurons make dumb choices.


As early as 2000, scientists used brain imaging techniques to demonstrate what are believed to be the first pictures of “the brain in love.” Following up on this work, researchers conducted an experiment that contrasted attraction between the sexes in situations of safety versus fear. They found that, under conditions of strong emotions such as fear and anxiety, the attraction was significantly greater than in safer, less emotionally-provoking situations

Years ago, I traveled a lot -- a nine year gig that took me around the world way too many times for a total of over 1.5 million miles. On an approach to the Rome airport, something happened to the plane. I am not sure exactly what it was, but we thought that perhaps the tail of the plane had been damaged. There were people praying and chanting as we thought it was a crash and everyone was going to die. I looked at the man next to me who was a Finnish scientist of some kind. I had never seen him before we boarded that plane. We put our arms around each other and professed our love for each other. We held each other very tightly and I was in love with this man at the time I knew I was crashing to my death. How silly I felt afterward (as did he), but I will never forget his face, the way he held me and how much I loved him during those frightening moments, which seemed an eternity.

In these situations, the body pours out a variety neurochemicals (dopamine, serotonin, oxytocin, phenylethylamine and others) that bond people to each other in certain ways.

Everyone who trades knows the feelings that can come pouring in, and examples are too numerous to mention. We have all felt the anxiety of seeing a position go against us, the fear of missing out or the shame that sets in when we can no longer take the pain and have to sell at a loss.

A day of euphoria can be followed by a day of despair. Fear of missing out, anxiety about losing a position in which we believed, denial that we could possibly have been wrong about our choice of entry, elation when a trade goes well—these and many more examples bring to mind the ups, downs and all-arounds that happen in the markets and in life.

Likewise in trading, the primitive brain areas (rat brain, limbic brain) can take over completely, leaving the newer (cortical areas) shaking their heads and powerless to do anything. The electrical and chemical impulses from the limbic rat brain completely overpower the rational new brain.

That inability to eat or sleep, the obsession with the beloved trades (especially those with high beta), the strange feeling of ennui which creeps in when the markets are not open, the search for excitement and something to do, going a little bit nutso or doing something wild and crazy” just for kicks”, sneaking a peak ( multiple peaks) at the markets while working at another job, trading in the car at lunch hour, trading while driving , constant preoccupation with the markets and trading to the exclusion of family and friends, etc. might be more than just normal curiosity about the beloved.

Are we having an affair with the market mistress? Is this true love? Is it addiction? Are we being seduced, teased, embraced and then abandoned? Are we in a large neurochemical sink where dopamine begets more dopamine and the chemistry of love and passion turns to the chemistry of addiction?

Thanks and Good Trading!



Janice Dorn, M.D., Ph.D.



www.thetradingdoctor.com