Home / Uncategorized / Are we hard wired to mess up our money?

Are we hard wired to mess up our money?

I'm always a sucker for articles about the brain and how the brain works, ever since Baroness Susan Greenfield presented at a meeting I chaired about ten years ago.

Her latest contribution to the debate about the financial crisis focuses upon how City traders are making rash decisions due to video games causing the brain's prefrontal cortex to be screwed.

Nice!

More likely is the testosterone levels in the trading rooms just causes rash decision making.  After all, it is widely known that men are simple "yes" and "no", mono-functioning beasts.  Bring a load of femininity into the trading rooms and we would all be sorted out, wouldn't we?

Not necessarily … but there is a strong view that a woman's touch to finance would not go amiss.

This may not be the solution though, as the latest research postulates that we are simply hard-wired to screw up our finances. 

All of us.

Discussing his research in Neuron magazine, Dr Scott Huettel of the Duke Centre for Neuroeconomic studies states: "What sort of strategy people tended to use could be predicted,
surprisingly, by how their brain responded to rewards: if there were
large responses to monetary reward in a brain area called the ventral
striatum, that person tended to simplify decision problems to only
consider winning or losing."

In other words, we do not make rational financial decisions, but simply bring them down to a question of: "will I win or lose?"

It might as well be the flip of a coin.

And then, just to make it easy, another psychology study published this week uses MRI scans of the brain and finds that receiving expert advice on finance may actually shut down areas of the brain responsible for
decision-making processes, particularly when individuals are trying to evaluate a situation where risk is involved.

So the "will I win or lose?" question becomes a no-brainer if an expert in coin-flipping says that you will win.

Does this explain why a man in a string vest in a mobile home in Alabama can be sold a $400,000 mortgage he cannot afford?

Or why a celebrity can invest in a ponzi scheme run by a shyster called Bernie Madoff?

Or why the Chairman of the Federal Reserve can believe that a house of non-collateralised derivatives cards run by prestigious investment banks could not fail?

I wonder …

About Chris M Skinner

Chris M Skinner
Chris Skinner is best known as an independent commentator on the financial markets through his blog, the Finanser.com, as author of the bestselling book Digital Bank, and Chair of the European networking forum the Financial Services Club. He has been voted one of the most influential people in banking by The Financial Brand (as well as one of the best blogs), a FinTech Titan (Next Bank), one of the Fintech Leaders you need to follow (City AM, Deluxe and Jax Finance), as well as one of the Top 40 most influential people in financial technology by the Wall Street Journal’s Financial News. To learn more click here...

Check Also

The digital transformation journey

I find more and more people are starting to understand that digital is a transformation …