How does our brain influence financial decisions? Dr. Alec Smith recently attempted to answer this question. He is a neuroeconomist at California Technological Institute (Caltech) in Pasadena. Neuroeconomics is a discipline using a physiological approach to try to understand financial and economic decision making. In his study of simulated stock trading, published in the Proceedings of the National Academy of Sciences, he found that a part of the brain associated with pleasure, reward, aggression, and impulsivity was activated during trading for many study participants. Magnetic resonance imaging (MRI) was used to track blood flow to different areas of the brain. The nucleus accumbens, a part of the brain dealing with reward and pleasure, showed increased activity on MRI scans as stock prices rose to excessively high levels before crashing back to more basic values and levels. Thus, there seemed support for the idea that during “bubbles” there is a correlation between activity in certain parts of the brain and risky trading behavior. In contrast, not all traders in the study showed the same pattern. Another group tended to sell earlier than others and earn the most in the study and showed activation in a different area of the brain. That area was the anterior insula, which tends to alert persons to more physical sensations as well as risk. For study participants for whom this was the area highlighted by the MRI, they got rid of their riskier assets before others, a more cautious approach. These individuals were fewer in number than study participants showing activation of the more pleasure seeking nucleus accumbens area.
For those of us in business but not in stock trading, what can this tell us about our economic and financial decision making? The answer appears to be that there is a relationship between your brain activity and behavior to include financial/economic decision making. This study did not directly address different mindsets I’ve discussed in other posts. There is indication that more success oriented versus more limiting mindsets activate different areas of your brain. These different mindsets and areas of brain activation influence your subsequent business actions and decisions as well as outcomes (see the post Success Mindsets Change Your Brain on my website www.successandmindset.com). Also, in my SAMURAI Success System (Success and Mindset Underscore the Relationship of Attention and Interpersonal Characteristics), there are four different attentional styles influenced by interpersonal characteristics such as self-esteem and speed of decision making, among others. We all have a dominant attentional style. Particular combinations of attentional style and interpersonal characteristics predispose you to differing mindsets. Given the apparent relationship between our mindsets and brain activation, I would advise business owners to maximize their business success through focus on the factors of mindset, attention, and interpersonal characteristics. These factors affect your leadership style, productivity, stress level, and turnover in your business. Change your thoughts and change your results.