ity and uncertainty, 180
in the markets, 180–182ambiguity, risk, and reward,
neuroscience of, 182–183
brain, trusting, 184expected value and expected utility,
172–173implications, 187jackpot trap, 173–176overweight, possibility of, 183–184probability misjudgments, 176–179trust hormone, 186ultimatum game, neuroscience of,
184–186
vividness, imagination, and desire,
179–180Delayed gratiﬁcation
brain basis of, 218–219in primates, 219–220
DeMartino, Benedetto, 194–195Denial, as emotional defense
Compulsive shopping disorder (CSD),
mechanism, 44, 291–292
57–58, 85
Concerta, in treating ADHD, 268
Depression, 57, 306Desynchronosis, 16
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INSIDE THE INVESTOR’S BRAIN
Diagnostic and Statistical Manual of
Emotions
Mental Disorders IV-TR, 56,147, 148Diazepam (Valium), 61Diphenhydramine (Benadryl), 56Disposition effect, 82, 190–191Divorce, 84Divorcees, ﬁnancial planning for,
278–279
Dopamine, 25, 32, 48, 51–53, 57, 114,
151, 152
cocaine use and, 62, 295desensitized systems in gambling,
149
managing, 87–88. See also Emotion
management
money, 77–89and perceptions, 37–38Endorphins. See OpiatesEndowment effect, 203–205Epinephrine, 26, 137Equity premium puzzle, 206–207Estrogen, in enhancing emotional
memories, 277Excitement and greed, 91–105
BIAS task, 97–100biased decision making, improving,
inhibition of, by opioid receptor
103–104
blockers, 219pathway, 114, 151release prior to learning, 265and stress, 141
Dopamine 4 (D4) receptor, 159Dreman, David, 108, 197, 328Drobny Steven, 115, 211Druckenmiller, Stanley, 212Drucker, Peter, 290–291Dweck, Carol, 314–315
Earnings reports, patterns in, 259Electroencephalogram (EEG), 30–31,
267, 314
Emotion management, 289–299
behavior, inﬂuence of money on, 291chemical stabilizers, 294–295decision journal, creating a, 297–299emotional defenses, 291–292happiness, pursuit of, 292–293neuroplasticity, 293–294self-discipline, 295–297
Emotional biases, 79Emotional biofeedback, 31Emotional defense mechanisms, 44,
291–292
and motivated reasoning, 45–46
Emotional intelligence, 32, 73Emotional memories, 276–277Emotional stability, neuroticism
versus, 157
brokers kindle irrationalexuberance, 93
good deal, excitement about, 101greed, basics of, 95–97greed in the markets, 104–105stock hype, anatomy of, 94–95
Expectations Investing (Mauboussin
and Rappaport), 319Expected value and expected utility,
172–173
Exploration, neurochemistry of, 114Externalization, 44Extraversion versus introversion,
156–157
Fear, 119–129. See also Anxiety, fear,
and nervousness
and anger, 86conditioned, 124managing, 124–125
Female brain, the, 277–278Feng, Li, 320“Fight-or-ﬂight” response, 26, 30, 38,
53, 132, 195
Fish oil, 56Fluoxetine (Prozac), 50, 262Foreign Exchange Capital Markets
(FXCM), 10
Fox, Vicente, 171Freud, Sigmund, 45, 296Friesen, Richard, 220–221, 296, 319
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Fuller, Russ, 12–13, 259Functional magnetic resonance
imaging (fMRI), 30, 60, 98, 112,124, 149, 185, 194, 220of Buddhist meditators, 293–294and neurofeedback, 312–313during prisoner’s dilemma task, 237,
277
real-time (rtfMRI), 313
Gambler’s fallacy, 253Gambling, 146–152
celebrities and, 150–151gambler’s brain, 149–150pathological, 57, 147–149treatment for, 152, 219
reducing, 151
Gamma-aminobutyric acid (GABA),
48, 55–56
Generalized anxiety disorder, 124Goal approach, 39Goal avoidance, 40Goal-directed behavior, neural circuits
in, 25Goleman, Daniel, 73Gore, Al, 128Great Depression, fear during, 124Greed. See Excitement and greedGroupthink, 227“Gunslingers,” 108“Gut” feelings, 70–71, 88–89
Haines, Mark, 238Hedonic adaptation, 293Herding, 225–241
analysts’ abuse of authority,
237–238conformity, 231contrarian lifestyle, living the,
239–240
cooperation, neuroscience of,
236–237
habit, 238–239information cascades, 232–233investment committees, advice for,
241
shocking truth, Stanley Milgram and
the, 233–235
social comparison, 230–231social proof, 228–230trend followers, advice for, 240–241
Heuristic, 37, 38High blood pressure, and unreleased
emotion, 88Hindsight bias, 44, 266–267Hippocampus, 26, 54, 138, 265–266
deﬁcits in, 282
Hirschhorn, Doug, 71, 165, 166, 308Histamine, 48Hoarding disorder, 58“Hot-hand fallacy,” 253House money effect, 209–210, 286Hubris. See Overconﬁdence and hubrisHunter, Brian, 207Hurricane Katrina, 128, 207Hurricane Rita, 128Hypothalamus, 26, 137, 138Hypothalamus-pituitary-adrenal (HPA)
axis, 26, 137, 138
Iguchi, Toshihide, 208Impulse-control disorders, 219Impulsiveness, conscientiousness
versus, 157–158Inconvenient Truth, An, 128Information cascades, 14, 232–233Insula, 28
anterior, 25, 32, 99
Introversion, extraversion versus,
156–157Intuition, 67–75
analysis and, 68–69and emotion in investing, 72–73emotional intelligence, 73“gut” feelings, 70–71investment practice, 69listening without thinking, 71–72subliminal emotion, 73–74unconscious, stirring the, 74–75
Investment Biker (Rogers), 164Investment committees, advice for, 241Investment practice, 69
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INSIDE THE INVESTOR’S BRAIN
Investment theory, traditional, 69Investor Personality Test, 158Iowa Gambling Task, 21–23, 81, 255Irrational Exuberance (Shiller), 253
Jack: Straight from the Gut (Welch),
70
Jones, Paul Tudor, 212–213, 289Jordan, Michael, 151Journaling, 117, 297–299
Kahneman, Daniel, 68, 193Kiev, Ari, 167Kirsch, Irving, 42Kleptomania, 219Knutson, Brian, 60, 98, 101, 112, 174,
265Kramer, Peter, 60Krugman, Paul, 97
Landis, Floyd, 58Lay, Ken, 185Lebed, Jonathan, 91–95Leeson, Nick, 208Leinweber, David, 245–246Leitner, Jim, 210–212, 318–319Lerner, Jennifer, 85, 204Lewis, Michael, 1, 92Limbic system, 24, 32, 218, 280Listening to Prozac (Kramer), 60Lithium, as treatment for bipolar
disorder, 59
Lo, Andrew, 247Locus ceruleus, 53, 137Loewenstein, George, 101Long-Term Capital Management(LTCM), xii, 1–2, 207, 326
Loss aversion, 203–213
equity premium puzzle, 206–207house money effect, 209–210lessons from the “pope,” 210–212psychological process of, 192–193put option, implied, 207–208differences in, 198neural process underlying, 194–195neuroscience of, 205overcoming, 208–209
Loss avoidance system (brain’s),
25–27, 32
Mad Money, 119, 213Malkiel, Burton, 247Mania, acute, 56Marketpsych.com, 145, 148, 158Mauboussin, Michael, 13–14, 319McClure, Samuel, 218Mean Genes (Burnham), 222Mean reversion, 247–249Medial prefrontal cortex (MPFC), 32,
98, 101, 112–113, 184
Meditation, 306Meeker, Mary, 236, 237–238Melatonin, 51Mellers, Barbara, 40, 83Memories, emotional, 276–277Memory. See Attention and memoryMemory loss, short-term, 138Meningioma, 20Meriwether, John, 1–2, 207Merton, Robert C., 1Meteorological effects on investor
mood, 15–17
Methylphenidate (Ritalin), 268Midbrain, 24–25Milgram, Stanley, 233–235Mind, origins of, 35–46
beliefs and expectations: theplacebo effect, 42–43
emotional defense mechanisms andmotivated reasoning, 45–46emotions and perceptions, 37–38expectations and the comparator,
39–40
news, making sense of the, 43–44self-deception, 44
Mirapex (Pramipexole), 52“Monday effect,” 16Modaﬁnil (Provigil), 59, 262Monetary incentive delay (MID) task,
265, 269Money emotions, 77–89divorce, amicable, 84emotional biases, 79fear and anger, 86
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feelings, managing, 87–88positive and negative feelings,difference between, 80–82regret as a self-fulﬁlling prophecy,
82–83
sadness and disgust, 84–86
Moneyline, 104Moodswing (Fieve), 57Motivated reasoning, 45–46Murphy, Shane, 308Mussweiler, Thomas, 250–252Mutual funds, 10–11Myers-Briggs personality test, 71
Nalmefene, 151, 219Naltrexone (ReVia), 57, 151, 219Nervousness. See Anxiety, fear, and
nervousness
Nesse, Randolph, 59–60Neural networks, artiﬁcial, 244–245Neurochemistry, 47–63
ﬁnancial performance,
neurochemistry of, 58–59mental disorders (ﬁnancial) ,chemistry of, 56–58neurotransmitters, 48–56
caffeine, 54–55dopamine, 51–53GABA, acetylcholine, and
Nobel Prize disease, 108Norepinephrine, 49, 53–54, 114, 137North American Securities
Administrators Association(NASAA), 9
Nucleus accumbens (NAcc), 32, 45,94–95, 98, 101, 102–103, 117,174, 265–266, 269, 325
Oberlechner, Thomas, 166Obsessive-compulsive disorders,
57–58, 306Ochoa, Francisco, 171Odean, Terrance, 272, 285Omega-3 fatty acids, 49, 55–56, 306Openness to new experiences versus
traditionalism, 158
Opiates, 54Options, framing your, 189–201aversion, differences in, 198disposition effect, 190–191letting winners ride, 199–200losers, holding, 195–197loss aversion, neural processunderlying, 194–195
problem, teasing out the, 192–194risk, framing, 194stock sale, father-son, 191–192
Orbitofrontal cortex (OFC), 20, 21, 28,
omega-3 fatty acids, 55–56
32
norepinephrine, 53–54opiates, 54serotonin, 50–51stress hormones, 54
recreational drugs and alcohol,
61–62
serotonin and market bubbles, 59–61
Overconﬁdence and hubris, 107–117
brain, winning changes the, 112–113conﬁdence, 115–117control, illusion of, 112exploration, neurochemistry of, 114hubris, psychology of, 108–109overconﬁdence, 109–111
Neurofeedback, 312–314. See also
male, 279
Emotional biofeedback
Neuroﬁnance, 5–6Neurolinguistic programming, 222Neuroplasticity, 293–294Neuroticism versus emotional stability,
157
Siva-Jothy, Christian, 114–115solutions, 117winning, and changes in the brain,
112–113Oxytocin, 186
Neurotransmission, 48News, making sense of the, 43–44Newton, Sir Isaac, xii, 1, 2–3
Panic. See Anxiety, fear, andnervousnessPanic disorder, 124
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INSIDE THE INVESTOR’S BRAIN
Pareidolia, 246Parietal cortex, 220Parkinson’s disease, 52, 149Pathological gambling disorder, 57,
147–149treatment for, 152
Prozac (ﬂuoxetine), 50, 60, 262Psychiatric disorders, and poor
ﬁnancial decision making, 19–21
Psychology and the Stock Market
(Dreman), 108
Personality factors, 153–168
Quasi-endowment effect, 204
“big ﬁve,” the, 154, 155–158, 160
agreeableness versus self-interest,
Rapid eye movement (REM) sleep,
158
conscientiousness versusimpulsiveness, 157–158
extraversion versus introversion,
156–157
neuroticism versus emotional
stability, 157
openness to new experiencesversus traditionalism, 158
genetics of personality, 158–160investing personality, 160–164
extraverted, open, and
conscientous investors, 163–164
neurotic investors, 162–163
other personality research, 164–166trading psychology, 166–168Personality traits, 79. See also
Personality factors
Pets.com, 238Placebo effect, 42–43, 125Polymerase chain reaction (PCR), 31Positive activation, 98Positron emission tomography (PET),
30
Possibility effect, 177Pramipexole (Mirapex), 52Prefrontal cortex, 32, 125, 126, 150,152, 218, 220, 267–268thinning of, with aging, 282
Probability misjudgments, 176–179Projection
bias, 44, 87as emotional defense mechanism, 44
Propranolol, 53Prospect theory, 190Protein kinase C (PKC), 139Provigil (modaﬁnil), 59, 262
295
Rappaport, Bernard, 319Raschke, Linda Bradford, 165, 296Rationalization, 44, 291–292Recency effect, 128Recreational drugs, 61–62Regret, as a self-fulﬁlling prophecy,
82–83
Representativeness heuristic, 128,
264
among Chinese risk takers, 286
“Reptilian brain.” See MidbrainReVia (Naltrexone), 57Reward system (brain’s), 25, 26, 32, 94Risk
Chinese risk takers, 284–285framing, 194love of, 143–152
celebrities and gambling, 150–151gambler’s brain, 149–150pathological gambling, 147–149reducing gambling, 151Risk-aversion mistake, 99–100Risk-seeking mistake, 102–103Ritalin (methylphenidate), 268Robbins, Anthony, 223Roddenberry, Gene, 68Rogers, Jim, 164Rogers, Robert, 60Ross, Wilbur, 128–129
Sadness and disgust, 84–86Samuelson, Paul, 11, 108Schneller, Karl, 250–252Scholes, Myron S., 1Schwager, Jack, 116, 167, 212Seasholes, Mark, 273
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Seasonal affective disorder (SAD),
Stock market
16
Securities and Exchange Commission
(SEC), 91–93, 184, 232, 320Selective serotonin reuptake inhibitors(SSRIs), 50, 60, 295, 308
citalopram, 58, 60
Self-control, improving, 221–223Self-deception, 44
data mining and, 245–246
Self-discipline, 295–297Self-interest, agreeableness versus,
158
Sentiment, investor, 17–18September 11, 2001, effect oninvestors, 86, 122
Serotonin, 48, 50–51
crash (1987), 43panics, 128
Stock Market Wizards (Schwager),
167, 212
Stress and burnout, 131–141“adrenaline junkies,” 139“choking,” 133–135stress, 132–133
biological effects of, 138–139managing investment, 140–141neurochemistry of, 137–138and trend perception, 136–137
Stress hormones, 49
cortisol, 53, 137, 138
Sympathetic nervous system (SNS),
26
depletion and lack of tryptophan,
in acute stress and panic, 137
236
low levels of, 60and market bubbles, 59–61transporter gene (5–HTT), 50, 124,
Taleb, Nassim, 260Technical Security Analysts
Association, 140
159
Shefrin, Hersh, 210, 241Shiller, Robert, 253–254Shiv, Baba, 28, 29, 301–302“Shopping therapy,” 85Simplot, J. R., 189Siva-Jothy, Christian, 114–115Skin conductance response (SCR)
monitor, 22
Slovic, Paul, 38, 72, 81, 175, 250,
266–267SMarT plan, 328–329Social phobia, 124Soochow Gambling Task (SGT),
255–258
Tetrahydrocannabinol (THC), 61Thaler, Richard, 209, 324, 328Tharp, Van K., 116, 311Theory of fallibility (Soros), 46TheStreet.com, 93, 119, 133, 213“Thought replacement,” 127Time discounting, 138, 215–223
chemical impulses, 219delayed gratiﬁcation
brain basis of, 218–219in primates, 219–220
options pit, making a killing in the,
220–221in practice, 223self-control, improving, 221–223
Soros, George, 46, 70–71, 153, 167, 289,
Trading Athlete (Hirschhorn and
310
South Seas Trading Company (1720), 3Spitzer, Eliot, 94Star Trek, 68–69Steenbarger, Brett, 165, 166, 297Steroid use in athletes, 58Stock analysts, 11–13Stock hype, anatomy of, 94–95
Shane), 308Trading coaches, 309–311Cymbalista, Flavia, 310Shull, Denise, 310–311
Trading Places, 153Trading psychology, 166–168Traditionalism, openness to new
experiences versus, 158
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INSIDE THE INVESTOR’S BRAIN
Trend and mean-reversion biases inchart reading, 247–250Trend followers, advice for, 240–241“Triune” brain, 24Trueman, Brett, 325Tryptophan (Trp), 50–51depletion, 60, 236Tversky, Amos, 193
Unconscious, stirring the, 74–75U.S. Air Force, amphetamine use in, 58
Valium (diazepam), 61Victory disease, 107–108Vividness, imagination, and desire,
179–180
Wall Street, 96“Wealth effect,” 134
Weber, Elke, 284Weber, Martin, 198Welch, Ivo, 237, 264–265Welch, Jack, 70Welfens, Frank, 198Wellbutrin (bupropion), 52
in controlling gambling behavior,
151
“Wisdom of the Collective, The”
(Mauboussin), 13–14
World’s Work, The (investment
periodical), 5
Yoga, meditation, and lifestyle, 306
Zak, Paul, 186Zyban (bupropion), 52
in controlling gambling behavior,
151
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