Conventional wisdom (and even academic research) says/said that we have basically three parts of our brain – the old lowest brain that helps us breathe and makes our heart beat, the “mid-brain” where emotions occur and the frontal cortex or higher brain where our more highly developed, analytical and linear thinking occurs. A second way of categorizing the brain is right to left with the right being generally speaking more artisitic and the left being more scientific.

At least the former, the old “triune” brain idea is now, well how can I put this delicately, WRONG. It began with Damasio in 1994 and Descartes’ Error and continues at an exponential pace today with researchers like Tor Wager and Lisa Feldman Barrett but the tsunami of evidence that we can’t make a single decision without a functioning foundation of feelings is just that – a tsunami. For example, Damasio, now at USC, has provided experimental evidence wherein the lack of healthy emotional circuits prevents an otherwise normally functioning human to be unable to choose between two outfits of clothing. Colin Camerer of Cal-tech, noted game theory expert, said in his 2005 summary article with Lowenstein and Prelec of Carnegie-Mellon and MIT respectively, in the Journal of Economic Literature “It is not enough to know what should be done, one must also feel it.” Barrett just did a summary article on all of the MRI pictures of emotion acting in the brain and concluded that neural networks facilitating emotion infiltrate areas within the frontal cortex. There is even evidence that we can’t identify an object, i.e. our sense of sight won’t work without an emotion firing first.

It is ironic because on one hand the book blink has been a huge hit and its message is to use “gut-feel” much more often. Simultaneously, the vast majority of us still believe that feelings are detrimental to good decision making. The answer lies in each individual learning a whole lot more abut their own feelings. There are impulsive feelings and there are intuitive, unconscious pattern recognition feelings – one is helpful and the other is deceptive.

It is indeed possible to learn the difference … and it is even more indeed, profitable. After all, isn’t the ping pong between confidence and fear what drives markets anyway? Markowitz said in one of his first treatise’s on Modern Portfolio Theory that it all hinged on confidence but that confidence was something that he didn’t understand much of anything about. Today’s neuroeconomists are starting to fill in that open question.

Tags: trading psychology

This entry was posted on Friday, June 26th, 2009 at 8:27 am and is filed under Emotion Analytics. You can follow any responses to this entry through the RSS 2.0 feed. Responses are currently closed, but you can trackback from your own site.