Your bank account may be shrinking because of the way your brain works. That’s according to Northwestern University finance professor Dr. Camelia Kuhnen, who found that we’re actually wired to make risky financial decisions. Here are the details:
The researchers asked volunteers to choose from high-risk and low-risk investments while they were in an MRI machine.
The result? Playing it safe activated an area of the brain associated with anxiety and pain. But choosing risky stocks increased activity in the brain’s pleasure center. And once that part of the brain is activated, it craves everything we think of as pleasurable. That’s one of the reasons casinos offer free drinks and cheap buffets. Because after a few bites of prime rib, your brain’s ready to take big risks. And a study done on direct-mail loan offers found that when the offer included a picture of an attractive woman, men responded just as often as when the interest rate dropped by four-and-a-half percent!
Of course, you can’t rewire your brain. But Dr. Kuhnen says that just being aware of what triggers risky behavior is half the battle.
And Rutgers University neuroscientist Dr. Mauricio Delgado says you should avoid making snap decisions. Because his research shows that a two-minute cooling-off period between when you decide you want something – and when you actually buy it - is enough to let the rational parts of your brain weigh in……And say, “Nah, nevermind.”