Frontlines | Investing With Your Brain's Heart
When it comes to money, smart people act reasonably instead of emotionally to make good decisions, right? Not according to research conducted by an international team of neurologists, economists, and psychologists (J. Dickhaut et al., "The impact of the certainty context on the process of choice," Proc Natl Acad Sci, 100:3536-41, March 18, 2003). The results, based on brain scans of people making economic decisions, show that emotions rule the domain of financial decision-making.
Test subjects were asked to choose between taking a 50/50 chance to get $200 or a 100% chance to get $100; most chose the guaranteed C-note. Surprisingly, though, while the subjects made this apparently clear-headed decision, the ventromedial cortex, which regulates emotions, increased in activity. However, when given a second choice between definitely keeping $100 or taking an undefined risk of losing it all in order...