neurobiology of trust
October 9, 2008 2:25 PM Subscribe
As the market plummets, it might be interesting to look at the neurological background in the breakdown of trust. The author, Jonah Lehrer, is a young brainiac writer for Seed and the excellent Frontal Cortex. l Scientists immediately discovered a strong neural signal that drove many of the investment decisions. The signal was fictive learning. l One way to think of the financial markets right now is that instead of being populated by rational agents, they're full of people with borderline personality disorder.
The Neurobiology of Trust
Recent articles in Seed by Jonah Lehrer.
Previously (wonderful post about Jonah Lehrer's first book, Proust Was a Neuroscientist).
Previous references to Frontal Cortex: 1, 2, 3.
The Neurobiology of Trust
Recent articles in Seed by Jonah Lehrer.
Previously (wonderful post about Jonah Lehrer's first book, Proust Was a Neuroscientist).
Previous references to Frontal Cortex: 1, 2, 3.
Great, as if people with borderline personality disorders haven't already screwed up my life enough.
posted by Auden at 2:41 PM on October 9, 2008
posted by Auden at 2:41 PM on October 9, 2008
Fascinating stuff.
I used to work for a brokerage firm - not a very reputable one, either (about on par with the gang in Boiler Room) and it became apparent to me in the first week that the reality of a company's strength or weakness was based entirely on what shareholders perceived as that company's strength or weakness, and had nothing to do with that company's actual earnings. Not a very new idea, I know, but it's nice to see that others have delved into this with greater depth and precision.
posted by Marisa Stole the Precious Thing at 2:42 PM on October 9, 2008 [1 favorite]
I used to work for a brokerage firm - not a very reputable one, either (about on par with the gang in Boiler Room) and it became apparent to me in the first week that the reality of a company's strength or weakness was based entirely on what shareholders perceived as that company's strength or weakness, and had nothing to do with that company's actual earnings. Not a very new idea, I know, but it's nice to see that others have delved into this with greater depth and precision.
posted by Marisa Stole the Precious Thing at 2:42 PM on October 9, 2008 [1 favorite]
*twitches uncontrollably*
posted by cortex at 2:43 PM on October 9, 2008 [1 favorite]
posted by cortex at 2:43 PM on October 9, 2008 [1 favorite]
"Are you better off than you were four weeks ago?"
posted by eriko at 2:46 PM on October 9, 2008 [2 favorites]
posted by eriko at 2:46 PM on October 9, 2008 [2 favorites]
... financial losses aren't simply monetary: because of how the brain computes trust, they are also personal. ... Until those financial rewards start to feel predictable again - and that may take a long, long time - investors will continue to be wary of each other.
Does an understanding of current events in the stock market really benefit from this particular overlay? Or the cigar just a cigar?
posted by StickyCarpet at 2:47 PM on October 9, 2008
Does an understanding of current events in the stock market really benefit from this particular overlay? Or the cigar just a cigar?
posted by StickyCarpet at 2:47 PM on October 9, 2008
Scientists immediately discovered a strong neural signal that drove many of the investment decisions.
Jason Zweig wrote a great book about this sort of thing: Your Money and Your Brain.
"Among the book's fun facts: the MRI brain scan of a cocaine addict is virtually identical to that of someone who thinks he is about to make money."
posted by Fuzzy Monster at 2:54 PM on October 9, 2008 [1 favorite]
Jason Zweig wrote a great book about this sort of thing: Your Money and Your Brain.
"Among the book's fun facts: the MRI brain scan of a cocaine addict is virtually identical to that of someone who thinks he is about to make money."
posted by Fuzzy Monster at 2:54 PM on October 9, 2008 [1 favorite]
So in other words, this market crisis would be averted if we all just ate a bunch of MDMA and got the oxytocin flowing again.
Look for pictures of people on Wall Street with huge pupils, that's when you'll know we're resorting to this.
posted by mullingitover at 3:05 PM on October 9, 2008 [1 favorite]
Look for pictures of people on Wall Street with huge pupils, that's when you'll know we're resorting to this.
posted by mullingitover at 3:05 PM on October 9, 2008 [1 favorite]
>>instead of being populated by rational agents, they're full of people with borderline personality disorder.
And they tell me I'm crazy.
posted by SaintCynr at 3:10 PM on October 9, 2008
And they tell me I'm crazy.
posted by SaintCynr at 3:10 PM on October 9, 2008
Sow what you are saying is that the prisoner's dilemma becomes a negative sum game after the participants start shanking each other?
posted by BrotherCaine at 3:12 PM on October 9, 2008 [2 favorites]
posted by BrotherCaine at 3:12 PM on October 9, 2008 [2 favorites]
Is anyone doing research on theoretical markets for irrational actors?
posted by BrotherCaine at 3:16 PM on October 9, 2008
posted by BrotherCaine at 3:16 PM on October 9, 2008
"temporal difference reinforcement learning (TDRL)" td;rl
posted by orthogonality at 3:16 PM on October 9, 2008
posted by orthogonality at 3:16 PM on October 9, 2008
After the Bailout audio, text
posted by East Manitoba Regional Junior Kabaddi Champion '94 at 3:21 PM on October 9, 2008
posted by East Manitoba Regional Junior Kabaddi Champion '94 at 3:21 PM on October 9, 2008
Is anyone doing research on theoretical markets for irrational actors?
You mean like Tom Cruise? Or more of a James Woods sort of deal?
posted by rokusan at 3:41 PM on October 9, 2008 [2 favorites]
You mean like Tom Cruise? Or more of a James Woods sort of deal?
posted by rokusan at 3:41 PM on October 9, 2008 [2 favorites]
At this point, we're really more into Gary Busey territory.
posted by monosyllabic at 3:45 PM on October 9, 2008 [1 favorite]
posted by monosyllabic at 3:45 PM on October 9, 2008 [1 favorite]
it became apparent to me in the first week that the reality of a company's strength or weakness was based entirely on what shareholders perceived as that company's strength or weakness, and had nothing to do with that company's actual earnings
Really? I'm not an investment banker, but nearly every stock I've tracked in any detail (including the stock for the company I currently work for) has moved directly in concert with revisions of earnings estimates and actual earnings announcements more than any other factor. In fact, the stock market knew the company I work for was going to miss earnings targets before most of the people who worked there knew it on several occasions.
Also, I don't find the experiment as described in the article to be particularly indicative of the institutional investing that drives the market. Yes, naive investors tend to act irrationally in the same way that gamblers do, making decisions based on illusory trends and assumptions rather than solid strategies, but the psychology of a professional trader is much different (although not without flaws itself).
posted by burnmp3s at 3:53 PM on October 9, 2008 [1 favorite]
Really? I'm not an investment banker, but nearly every stock I've tracked in any detail (including the stock for the company I currently work for) has moved directly in concert with revisions of earnings estimates and actual earnings announcements more than any other factor. In fact, the stock market knew the company I work for was going to miss earnings targets before most of the people who worked there knew it on several occasions.
Also, I don't find the experiment as described in the article to be particularly indicative of the institutional investing that drives the market. Yes, naive investors tend to act irrationally in the same way that gamblers do, making decisions based on illusory trends and assumptions rather than solid strategies, but the psychology of a professional trader is much different (although not without flaws itself).
posted by burnmp3s at 3:53 PM on October 9, 2008 [1 favorite]
I've got Nick Nolte on the phone, and he sounds like he's waving a gun around.
posted by cortex at 3:54 PM on October 9, 2008 [1 favorite]
posted by cortex at 3:54 PM on October 9, 2008 [1 favorite]
Really?
Yes, really. Mostly in a downward direction, i.e., sure, Company X had a great quarter, but I heard they're due for a staff re-shuffling, and that name sounds foreign to me, and so forth, to where the cross talk spreads like influenza and they start tanking for absolutely no reason other than the company "seems" untrustworthy. As I said, I was working with some pretty shady characters. These weren't old men in tweed looking at their pocketwatches as quotes came off the ticker tape. These were frat kids who took their Series 7 because they heard trading was more lucrative than telemarketing.
posted by Marisa Stole the Precious Thing at 4:00 PM on October 9, 2008
Yes, really. Mostly in a downward direction, i.e., sure, Company X had a great quarter, but I heard they're due for a staff re-shuffling, and that name sounds foreign to me, and so forth, to where the cross talk spreads like influenza and they start tanking for absolutely no reason other than the company "seems" untrustworthy. As I said, I was working with some pretty shady characters. These weren't old men in tweed looking at their pocketwatches as quotes came off the ticker tape. These were frat kids who took their Series 7 because they heard trading was more lucrative than telemarketing.
posted by Marisa Stole the Precious Thing at 4:00 PM on October 9, 2008
...indicative of the institutional investing that drives the market. Yes, naive investors tend to act irrationally in the same way that gamblers do, making decisions based on illusory trends and assumptions rather than solid strategies...but the psychology of a professional trader is much different
Professional trader like Mr. "I have no golden parachute" Dick Fuld (only $400 to $500 million in the bank since 2000)? Or the solid strategy of "making money on a pyramid built upon high interest, extremely risky loans made to people who had no money"? Or the rational decision of AIG execs to spend $440,000 on a Yeeha the sky is falling post bailout party?
posted by nickyskye at 4:35 PM on October 9, 2008
Professional trader like Mr. "I have no golden parachute" Dick Fuld (only $400 to $500 million in the bank since 2000)? Or the solid strategy of "making money on a pyramid built upon high interest, extremely risky loans made to people who had no money"? Or the rational decision of AIG execs to spend $440,000 on a Yeeha the sky is falling post bailout party?
posted by nickyskye at 4:35 PM on October 9, 2008
The problem with the economy is just mental?
So... Phil Gramm was right?
posted by spiderwire at 5:11 PM on October 9, 2008
So... Phil Gramm was right?
posted by spiderwire at 5:11 PM on October 9, 2008
So, it's back to the counterfactual reasoning, is it? I suspect that we have trusted those in the financial market business to be smarter than they are. As long as they are making money they don't see much less care what sort of house of cards they construct. I heard a former lawyer for the SEC describe the day when they had the resources and power to visit a firm with a team of attorneys and sift through what they did each day, from how they got their money, to who made decisions on trading, to who had oversight in the firm. He felt that this was the primary problem with deregulation: that nobody really knew what was happening anymore because no one was asking those kinds of questions.
But, then again, I don't know squat about the financial markets. I'm just a lowly biostatistician.
posted by Mental Wimp at 5:14 PM on October 9, 2008
But, then again, I don't know squat about the financial markets. I'm just a lowly biostatistician.
posted by Mental Wimp at 5:14 PM on October 9, 2008
Meanwhile, in England, fears over a lack of control cause people to turn to magical thinking.
posted by UbuRoivas at 5:35 PM on October 9, 2008
posted by UbuRoivas at 5:35 PM on October 9, 2008
Professional trader like Mr. "I have no golden parachute" Dick Fuld (only $400 to $500 million in the bank since 2000)? Or the solid strategy of "making money on a pyramid built upon high interest, extremely risky loans made to people who had no money"? Or the rational decision of AIG execs to spend $440,000 on a Yeeha the sky is falling post bailout party?
No, I agree, professional traders are by no means perfect. Like I said, not better, just different. Yes, Fuld ran Lehman into the ground, the industry as a whole screwed itself by betting on subprime, and executives throwing a party for themselves during a crisis is ridiculous, but none of those things were simulated in the experiment.
My point was that there is at least some method to Wall Street's madness, whereas the experiment's results were mainly do to the participant's lack of any method at all. This crash wasn't by large a case of dopamine and randomly throwing darts, it was a case of unregulated greed and overloaded financial systems.
posted by burnmp3s at 6:06 PM on October 9, 2008
No, I agree, professional traders are by no means perfect. Like I said, not better, just different. Yes, Fuld ran Lehman into the ground, the industry as a whole screwed itself by betting on subprime, and executives throwing a party for themselves during a crisis is ridiculous, but none of those things were simulated in the experiment.
My point was that there is at least some method to Wall Street's madness, whereas the experiment's results were mainly do to the participant's lack of any method at all. This crash wasn't by large a case of dopamine and randomly throwing darts, it was a case of unregulated greed and overloaded financial systems.
posted by burnmp3s at 6:06 PM on October 9, 2008
That's it. I'm writing this guy and ordering "Full Frontal Cortex".
posted by Durn Bronzefist at 6:10 PM on October 9, 2008 [1 favorite]
posted by Durn Bronzefist at 6:10 PM on October 9, 2008 [1 favorite]
Fuzzy Monster: "Among the book's fun facts: the MRI brain scan of a cocaine addict is virtually identical to that of someone who thinks he is about to make money."
I think that's the result, not the cause. Snorting money into your bank account is unlikely to have a direct chemical affect upon your brain.
posted by JHarris at 6:14 PM on October 9, 2008
I think that's the result, not the cause. Snorting money into your bank account is unlikely to have a direct chemical affect upon your brain.
posted by JHarris at 6:14 PM on October 9, 2008
Great post, nickyskye. Lehrer is a great writer.
Previous discussion of the fifth link.
posted by homunculus at 6:27 PM on October 9, 2008
Previous discussion of the fifth link.
posted by homunculus at 6:27 PM on October 9, 2008
yikes. It looks like that trust issue isn't happening today, the market is careening down.
posted by nickyskye at 10:55 AM on October 10, 2008
posted by nickyskye at 10:55 AM on October 10, 2008
That's it. I'm writing this guy and ordering "Full Frontal Cortex".
Thank god we no longer allow images.
posted by rokusan at 12:27 PM on October 10, 2008 [1 favorite]
Thank god we no longer allow images.
posted by rokusan at 12:27 PM on October 10, 2008 [1 favorite]
American Dream a Biological Impossibility, Neuroscientist Says
posted by homunculus at 10:11 PM on October 21, 2008
posted by homunculus at 10:11 PM on October 21, 2008
« Older Geowanking | USGS Photo Library Newer »
This thread has been archived and is closed to new comments
Sounds a lot like my university's I.T. department.
posted by spock at 2:36 PM on October 9, 2008 [1 favorite]