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Sleeplessness Causes Us To Make Poor Investments
Scientific American noted yesterday that a lack of sleep makes us take riskier gambles:
A
team of Duke University researchers examined the brains of 29 healthy
volunteers using functional MRI, which tracks changes in blood flow in
the brain, while the subjects performed a variety of gambling tasks.After a full night of sleep,
participants behaved like most people tend to in the real world:
guarding against financial loses and cautiously pursuing gains.But
when deprived of a night's sleep (kept awake in the lab from 6 p.m.
until 6 a.m.), the volunteers "moved from defending against losses to
seeking increased gains," the researchers reported. This shift "suggests
an unfounded rise in expectation for gain," a condition the team
describes as "an optimism bias."
***
Upon examining the
fMRIs, the researchers noticed that when making financial decisions in
the gambling games, sleep-deprived individuals had greater activation
in the ventromedial prefrontal cortex, an area of the brain
associated with fear, risk and decision-making, compared with when
they were well rested. The sleep-deprived group also showed a drop in
activity in the anterior insula, a region implicated in emotion and
addiction, relative to when they had slept.These changes might be linked to the excess dopamine
the sleep-deprived brain tends to fire off in an effort to help keep
alert. This neurotransmitter, which is linked to pleasure and reward,
might be at least partly to blame for sleep-deprived subjects'
increasing sense that they have better odds of winning big—and their
lessening fear of losing.
***
These effects could also extend to areas where the stakes are even higher, such as the trading floor or the hospital, where workers often perform their duties when they are less than well rested.
"I think it's critical that society as a whole grapple with the data
generated about the detrimental effects of sleep deprivation," Michael
Chee, a professor at Duke's Neurobehavioral Disorders Program in
Singapore and a co-author of the new study, said in the statement.
Interestingly, caffeine doesn't help. As Scientific American notes:
Because
these effects seem to run deeper than just apparent torpor, a shot
of espresso—or even stronger stimulants—might not short-circuit the
sleep-deprived brain's tendency toward unwarranted optimism,
Venkatraman added. "Countermeasures that combat fatigue and improve
alertness may be inadequate for overcoming these decision biases," he
said.
A surge of dopamine is not the only reason that sleepnessness makes us bad investors. As WebMd reported in 2000:
A sleepy person's brain works harder -- and accomplishes less.
***
"Sleep
deprivation is bad for your brain when you are trying to do high-level
[thinking] tasks," study co-author J. Christian Gillin, MD, tells WebMD.
"It may have serious consequences both on performance and on the way
your brain functions."
Gillin's team at the University of
California, San Diego, and the San Diego VA Medical Center found that
the brains of some sleep-deprived study participants tried to overcome
the language-center shut-down by shifting activity to another part of
the brain.
The International Journal of Occupational Medicine & Environmental Health (IJOMEH ) noted last January:
Sleep deprivation results in poor memorizing, schematic thinking, which yields wrong decisions, and emotional disturbances such as deteriorated interpersonal responses and increased aggressiveness.
The "schematic thinking" results from the brain's attempt to use the parietal lobe - which usually processes visual information
- to think through problems normally handled by areas of the brain
slowed down by sleeplessness, including the temporal lobe (normally
involved in language processing), the thalamus, frontal and occipital cortex and motor speech centers.
As the University of California at San Diego noted in 2002:
A
team of researchers from the UCSD School of Medicine and the Veterans
Affairs Healthcare System, San Diego used functional magnetic resonance
imaging (fMRI) technology to monitor activity in the brains of
sleep-deprived subjects performing simple verbal learning tasks.
They
were somewhat surprised to learn that regions of the brain’s
prefrontal cortex (PFC) displayed more activity in direct correlation
with the subject’s sense of sleepiness; the sleepier the subject, the
more active the PFC.
Furthermore, the temporal lobe, a brain
region involved in language processing, was activated during verbal
learning in rested subjects but not in sleep deprived subjects.
Additionally, a region of the brain called the parietal lobes, not
activated in rested subjects during the verbal exercise, was more
active when the subjects were deprived of sleep.
***
“It
is possible that when the prefrontal and temporal regions were
affected by sleepiness, the brain shifted the verbal processing to
another system in the parietal lobes that could compensate for the loss
of function. This suggests that parietal lobes might play a special
role in the brain’s compensation for sleepiness,” said Gregory G.
Brown, Ph.D., associate professor of psychiatry at UCSD and a member of
the team.
There
are, of course, times when visual, schematic thinking is key to
decision-making, such as when we are comparing graphs to determine
market trends. But if we use schematic thinking when other types of
thinking are required, we might make bad investing decisions.
Interestingly,
people are are chronically somewhat sleep deprived can suffer same of
the same impairments in thinking as people who go completely without
sleep for a night or two. As the IJOMEH article quoted above notes:
The
consequences of chronic sleep reduction or a shallow sleep repeated for
several days tend to accumulate and resemble the effects of acute sleep
deprivation lasting several dozen hours.
However, chronically sleep-deprived people are usually less aware of the impairment of their thinking than those who skip an entire night of sleep.
A
2007 study by Harvard Medical School and the University of California
at Berkeley showed that lack of sleep causes the brain to become
incapable of putting an emotional event into the proper perspective and
incapable of making a controlled, suitable response to the event.
This
is important to investors because - if we overreact to good news or bad
news from the market in general or our particular investments in
particular - we'll react in an unproductive manner.
Similarly, a 2007 study by Walter Reed Army Institute of Research showed that sleep deprivation greatly impairs decision-making processes that depend heavily on emotion:
The
findings, along with previous brain-imaging studies, suggest that
sleep deprivation has a particularly debilitating effect on
decision-making processes that depend heavily on emotion. "When people
go for more than 24 hours without sleep there are dramatic decreases in
brain activity in the prefrontal cortex [the area of the brain involved
in processing emotions and decision-making]," says Killgore. "It
basically goes to sleep."
Given
that most of us have a lot of emotion around money - making it, not
losing it - sleeplessness can greatly affect our ability to make smart
investing decisions
- advertisements -
Momo chartists need to get Mo' sleep!
I thought it was my bad investments that caused me to lose sleep. Go figure.
a drug or process to enhance implicit learning may also enhance visceral technical analysis.
an explicit learning enhancement could aid the rules one adopts and verbalizes.
trading is probably half rule based and half 'gut' (information-integration category learning).
Are you saying that learning enhancements offset lack of sleep? Voice of experience?
This article reminds me of the daily brainless healthwatch updates we get in the local newspaper... "Study finds that overweight people are more likely to overeat." "New report links old age to death." Duh.
I got a good night's sleep and no hangover. Thinking about rebalancing to more cash this morning. Something's got to give.
Also a bad idea to trade or gamble when you are boozed up. And chasing women. And posting on the internets. (The quality of discourse mos definitely goes down around here on Friday nights.)
How can anyone ever sleep with the US government torturing everyone and blowing up their own citizens in domestic terrorist attacks?
Trade stocks after taking Viagra for really big results, but not for more than 4 hours, after which call your Doctor for stock market recommendations
GW,
Does sleeplessness also cause you to hate your country and deny OBL's involvement in 9/11. It is an affront that you are allowed to post here - you are a joke.
How does GW's distrust of the US government equal hatred of the US?
Unless you see our government as the embodiment of the country.
You are a statist troll.
Youre the joke bubba. 9-11 truth.org
+911
Yawn.
Very good thread . And extremely relevant .
I'll never forget the effect sleep deprivation had on my trading back in June of last year . I'd just had the most profitable day of my life ; from the early European session right through to the Asian hours I was at my screen and made a bundle , everything " clicked " for me . Then I woke after hardly any sleep to trade the European session once again , still on a euphoric high from the previous day .
The result was an unmitigated disaster . I made mistake after mistake : adding to losers , trading on emotion and failing to observe fairly transparent patterns/signals . In the end I lost not only all my profits of the previous day but also a fairly sizeable chunk of my sacred core capital .
Would be interesting to see a study on people who eat fast food or buy the majority of their food from walmart and the "health" of their financial well being.
Make poor investments and you get sleeplessness. Blame Bernank! Thought being a zombie on no sleep would help in a QE2 market?
and I thought it was the unpredictability of a corrupt and manipulated market, thanks for setting me straight.
Guilty as charged. Especially Sunday nights going into Monday mornings.
MmmmHmmm
On that note... I'm beat...
"good night and good luck"!
ps:
Great work on the 9/11 thread. Maybe a few more people will awake to reality.
good thread....it would be interesting to see similar study with people at various levels of intoxication.
Exactly what I was thinking. Hell with sleep, the study needs to concentrate on Wall St HFT kids and the combination of X, crystal meth, and crack daily uptake and what effect it has on their joystick controller reflexes.
I'll admit, this is a good read and applies well to the context of why we're all here on ZH. Dopamine is everything. Wonder how a few lines of blow impacts one's risk tolerance?
Ecstasy increases serotonin, which may alleviate some effects of dopamine, so I'd say a few pills would be a more interesting study versus cocaine.