Neuroeconomics and the Buyology of economic choices: Trading while under the influence?

Jul 14, 2021

Dr. Amos Nadler, Ph.D. Chief Economist at Fabriik

 You may have noticed that in addition to the market and financial context, I also include behavioral and biological factors that investors should know about. Why? Because we are not only influenced by outside forces such as market events and news but our interpretation and physiologic responses also play a big role in the subsequent decisions we make, i.e. neuroeconomics, or as I like to call it – “buyology”! For example, did you know that testosterone affects how men trade stocks, and that this likely plays a role in the larger stock market? You betcha.

We think that the drugs we ingest (including the legal, sorta legal, and definitely not legal) have the biggest impact on us, but we don’t consider the influences of our internal biological factors. Think about it, we each have a built-in pharmacy in our brain that constantly pumps out potent compounds on-demand and mainlines them throughout our body. Our heart rate, breathing, and overall physiologic pace also change in response to what happens to us, which can further influence our decisions. We’ve known for years that our biological systems motivate the four F’s — fighting, fleeing, feeding, and… mating — but how does our biology affect our financial decision-making? (Spoiler alert: biology affects our decisions in more ways than we realize).

So, what exactly is neuroeconomics, or buyology?

This is not a philosophical question, but a real (and exciting!) field of research that neuroeconomics tackles. Neuroecon uses insights from neuroscience (brain scans, mostly), behavioral genetics (hold the jeans jokes for later), and hormones and neurotransmitters, to understand their impact on economic decisions. The outcomes of this research are relevant to all of us because we make decisions in a specific physiological and neurochemical state, and as you’ll learn in forthcoming articles, those states can make a big difference in the choices we make, so it’s best to be informed if we want to consistently outperform.

Wanna learn more? Tune in to future editions of Threads of Thought. In next week’s thread, I’ll cover the effects of stress on risk-taking. Got a comment or a question? Feel free to reach out to me on Twitter.

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