What happens in the brain when the choice between two financial products? What happens if the decision perceived as "risky"? Can you individual decisions a predictor of how the financial markets work?
These are the kinds of questions that have arisen from the relationship between the development of neuroscience and finance at times ... "Neuro Finance" or "neuro-economics".
To understand what happens in the brain when we make financial decisions relatively new science, but is already proving to be interesting.
Neuroscience
A new laboratory at the University of Miami School of Business was established to examine the relationship between the brain and financing.
Using electroencephalography (EEG) to measure electrical activity in the brain and eye tracking technology, it is not carried out experiments with the Finance students, the need for expensive fMRI technology.
One of the main researchers explained what neuroscience tried to find:
, "The money in the nature does not exist if a person says," I'll save set 20% of my salary into a retirement account, "it is that the same part of the brain to would use a squirrel to remove nuts Winter? "
"We're trying to figure out which parts of the brain have that we use today to make do financial decisions that were originally intended, and consistency."
The general assumption is that our choices (in terms of finances or anything else as "important") are purely rational decisions, made without disturbing emotions. In terms of funding, there are a variety of metrics to be used to allow us to make informed decisions. ""
The laboratory findings back up previous neuroscience show, however, that emotions play an important role in all decisions.
The work of neuroscientist Antonio Damasio has shown that people with damage to the part of the brain where emotions are generated are also not in a position to make decisions - even the simplest, such as what to wear.
In one experiment, the students of both institutions with exactly the same parameters, but with different names of the people who run the center. It is latter information should not be a factor in the analysis to go its financing, but American students a name which more than one name that sounds strange sounds consistently to choose. This is the effect of emotions in the process of decision.
Could this help explain the financial markets?
Neuro is a growing field and covers many fields such as neuroscience, experimental and behavioral economics, cognitive and social psychology, theoretical biology and mathematics.
One of the questions at the top of the field, whether the understanding of what happens in the brain of an individual, if they can make a financial decision to extend the behavior of financial markets.
The principal investigator at the University of Miami School of Business suggests:
"If you really think about the market, it is a gathering of people to do things. If you really want to understand the behavior of the group in order, it is useful to understand how to make decisions on an individual level."
A study by the California Institute of Technology throws more light on this, suggesting that a biological urge to predict how others behave - and this helps drive the type of market fluctuations in booms seen and 'busts. It was found that, rather than factual decisions based solely on price data and explicit value, dealers were forced to predict how to change the market from the behavior of other operators (in the belief that other market knew better than them).
Next time, if you are to make a financial decision, stop and think: what drives this decision? Is it really fair analysis and figures? Or there are emotions bubbling in the background of lead?
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