How does our brain react to thoughts of money? What signals does he send in response to fear, failure, or surprise? How do these signals prevent investors from behaving rationally in the stock market, and how, knowing about these effects, can you increase your profits? To answer these questions, Wall Street Journal journalist Jason Zweig went through a series of experiments, spoke with many leading neuroscientists and neuroeconomists, and wrote Your Money and Your Brain. We figured out why investors should read it.
The book examines the full spectrum of human emotions — from fear and regret to happiness and self-confidence, while the author analyzes the impact that feelings can have on investment. At first glance, it may seem that the answers are obvious, and every successful investor behaves extremely rationally. However, Zweig, using simple examples, proves that most people not only do not have sufficient knowledge about the world, but are also unable to soberly assess their awareness.
No matter how prudently a person approaches the issue of disposing of his funds, his decisions are still uncontrollably subject to the release of chemicals in the brain. This helps to understand the reasons for unreasonable behavior: “Even Nobel laureates are not always able to act within the framework of their economic theory,” the author emphasizes, referring to Harry Markowitz, who won the Nobel Prize in economics in 1990. He developed a pioneering portfolio theory, but did not apply it to his own portfolio, instead dividing the stocks and bonds in the portfolio 50/50.
Therefore, according to the researchers, investment issues should be analyzed at the level of unconscious uncontrolled reactions emanating from the brain, and not dictated by rational rules.
Each chapter of the book introduces the reader to a new feeling: overconfidence, risk, fear, surprise, regret, or happiness. In the process of getting acquainted with the reaction of the brain, the author gives interesting historical cases in the stock market, then recommends testing yourself on simple demonstrative tests, and then describes in detail scientific experiments and neurobiological research in this area. At the end of each chapter there are tips on how you can make your emotions work to your advantage, how to learn from them and make a profit.
Zweig discusses in detail how reckless a person is, gradually discovering not only the biological reasons for such recklessness, but also ways to combat it. The title of the book sets you up for recipes that will certainly help you get rich. However, the book itself only illustrates the reasons why investors can lose money, explains complex neuroeconomic patterns and provides simple advice on how to control their expectations, willingness to invest and attitude to risk.
To understand what has been written does not require special knowledge, on the contrary, the book is suitable for both a novice investor who has no experience of mistakes and defeats, and an experienced specialist who wants to look at their decisions from a different angle. But you should be prepared for the fact that not all advice will appeal to a professional investor with a built portfolio strategy, while beginners will find many interesting life hacks for managing their emotions.
Complex scientific research is presented here in simple language. At the same time, many well-known facts after reading the book will be filled with new meaning and sound completely different. Everyone will be able to learn something new about how he thinks, how he makes decisions and why he unconsciously makes mistakes.