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Trading stocks can be as good as sex. At least that would be the response of people who spend most of their day sitting in the visitors’ gallery of the stock exchange or at the comforts of their offices and homes, intently watching the stock ticker and stock screens in their personal computers. Sounds like a jest, right? Or the thing someone might say if one has a frigid wife or a celibate husband.
These people need fret no more. They are absolutely correct. Scientific studies have been done to prove that stock trading can be as good, if not better, than sex or drugs.
In 2004, according to Investopedia.com, Brian Knutson, an associate professor of psychology and neuroscience at Stanford University, discovered that trading stocks actually affected the same parts of the human brain that provided the sex drive, or more commonly termed as “lust,” and also drove sex addiction.
This so-called “pleasure center” is not one single center but is actually a neural network distributed across the subcortical regions and cortical regions of the brain. Firing up these neurons does not necessarily provide intense pleasure, according to the latest research. Instead, the stimulation imparts a form of “wanting” or motivation to obtain the same kind of stimulation. Hence, man has the sex drive and drug addiction, and now, stock trading addiction.
Too much of a good thing can be bad, as everyone’s mother would have told them when they were old enough to be told the truth about the birds and the bees. Too much sex drive can lead down the path towards sexual deviancy and sexual addiction. Take too much comfort from chemicals and that could lead to drug dependency. Trade too much stocks and that could lead to the poor house.
For the pleasure center of the brain, when given enough leeway, can override the brain’s frontal lobe, which is where human reasoning is said to reside.
Two things drive man: the pursuit of pleasure, or the avoidance of pain. In the Knutson study, investors were shown to be motivated by these two primal drives. Investors are generally ruled by reason and tend to act rationally until an event causes them pleasure (a windfall gain) or pain (a loss). At that point, reasoning takes a backseat and investors become irrational.
In the Knutson experiment, where participants were asked to invest in three sets of securities with varying risks and returns, the “investors” started out rationally. But after a sudden gain or loss, the “investors” started to listen more to their pleasure centers: a loss led to risk-averse behavior (once burned, twice shy) while a gain prompted risk-seeking behavior (bet the farm). Both behaviors increased the chances of a loss.
The experiment’s results help explain the irrational decisions of investors. Investors may chase the previous year’s too long and pass on the chance to pocket a gain, or they tend to take losses personally and over-liquidate a portfolio instead of averaging down on the investment. Investors also tend to over-trade, keep their losing stocks while selling their moneymaking positions, and so on.
It was thought before that people invest to make money so they can later buy things. It turns out that making or accumulating money, by itself, had become the source of pleasure. This makes trading stocks addictive.
This behavior becomes even more intense when people are deluged with a lot of information that could require rapid decision-making, or so they might think. Faced with this situation, most investors would be trading in and out the market more frequently, thus leading to more trading addiction and increasing their risks of making a mistake.
This is the present situation that people in the market now face. News about the developments in the Eurozone, the US economy and China continue to rain on the market like a sudden cloudburst. When investors don’t have their thinking cap on, this flood of information can push their trading instinct into overdrive and, unbeknownst to them, they have become creatures of their brain’s pleasure centers.
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