Buyology: Why are we so obsessed with crypto prices?

May 25, 2021

Full disclosure: I’m aroused by financial markets, and the volatile ascent of cryptocurrency prices quickens my pulse and I, too, feel an irresistible urge to jump into the fray and buy, buy, BUY!!! I’m human after all.

But why are crypto prices so riveting to us?

It’s because of the unpredictability! From a neurological perspective, the novelty of fluctuating asset prices — like political news, fantasy football, and three-ring circuses — elicits the brain to produce a neurotransmitter called dopamine. Our neural systems are optimized to direct attention especially towards things that have survival and/or reproductive significance, and in today’s world, your portfolio pertains to both.

What happens in the brain when we are surprised or disappointed (like many people are right now from the current downturn in prices)? Dopamine is produced when something occurs in relation to expectations: dopamine spikes if the expectation is exceeded, little happens if there’s no surprise, and an unpleasant drop occurs when things fall short of the expectation. This has been shown in monkeys with juice rewards (Bayer et al., 2005) and with humans and money (Preuschoff et al. 2006), so this trans-species trait shows us it’s part of our evolutionary makeup.

To stay sane during the long haul of investing, keep in mind that just because something feels important — like that one percent you allocated to a speculative asset wildly thrashing about — it doesn’t mean you should pay constant attention to it and lose sight of the bigger financial picture.

fabriik