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Can Brain Scans Predict The Market?
By Kabir Sehgal, the author of Coined: The Rich Life of Money And How Its History Has Shaped Us. He is a former vice president at an investment bank.
Can brain scans predict the market?
I’m not good at predicting the market. At first, I thought it was just me. In 2008, I began working in sales and trading at an investment bank. I lacked formal training in fundamental security analysis, and my projections rarely matched actual outcomes. Yet it wasn’t until the great financial crisis that I realized that even well-trained professional forecasters can get it incredibly wrong. That the IMF, Fed, and several asset management firms and investment bank research departments didn’t see the crisis coming left me with a question: is there a better way to forecast? I searched for answers for several years while I researched my book Coined: The Rich Life of Money And How Its History Has Shaped Us. I eventually concluded that if we want to become better at financial forecasting, we shouldn’t just consult stock charts but brain scans.
Self-Correcting Economists
Of course, I wasn’t the only one surprised with the inaccuracy of professional forecasters. To his credit, Allan Greenspan admitted that he was shocked that his financial forecasts were wrong. In his book, he calls for a fundamental rethinking of how economists forecast. This is already happening, to a degree. Several leading economists contributed entries to the compendium “What Have We Learned? Macroeconomic Policy After the Crisis.” Many suggest better macro prudential measures like higher capital requirements, which should lessen market volatility and create more visibility for forecasters. But in his critique of this text, economist Alan Blinder goes even further by calling into question the prevailing assumption on which modern economics is built – that humans are rational, logical actors.
“Homo economicus, an efficient, rational, calculating machine, never worries about complexity. But Homo sapiens is an entirely different creature. We humans are poor and biased calculators. We regularly succumb to fads, fancies, and passions. We can be fooled.”
In one study, the behavior of over 400 people in an affluent community was analyzed. These are supposedly self-interested people who built considerable wealth. Yet only seven percent of these people acted in a manner similar to homo economicus. In the words of quantitative finance expert Paul Wilmott, “Economists’ models are just awful. They completely forget how important the human element is.” Nassim Nicholas Taleb puts it more emphatically, “We have to build a society that doesn’t depend on forecasts by idiotic economists.” Maybe the idiocy of which he speaks is that we’ve long made assumptions about human behavior with little scientific basis. But increasingly, neuroscientists can provide scientific insights into how we make financial decisions.
Brain Economics
It was late at night, but I was wide awake. I was browsing YouTube and came across a lecture of Brian Knutson, a neuroeconomist at Stanford University. Neuroeconomics is an interdisciplinary field, but it’s essentially comprised of neuroscientists who study how humans make financial decisions. In the lecture, Knutson explained how he could accurately predict whether someone would buy or sell a stock by scanning their brain. Moreover, he described how genes influence our investment decisions. I wasn’t just fascinated with the accuracy of his forecasts. But that he was establishing a biological basis for financial forecasting. He started with the brain and then looked at the resulting financial decisions – instead of just assuming that we acted in line with a theory of human behavior.
I wanted to learn more, and so did my friends who are professional investors. So I invited Knutson to New York to meet with us, and he obliged. He walked us through some of the key findings of his research:
Genes influence financial decisions
I’ve heard portfolio managers make many excuses about their poor performance. But I’ve never once heard one say, “Sorry for losing you money. I’m genetically predisposed to taking on more risk despite market conditions.” But in a study, Knutson and two colleagues found that genes indeed influence our financial decisions. They found that there are variants of the 5-HTTLPR gene that influence how much risk someone will take. For example, participants who had one variant with short alleles took on less risk, placing more money in cash than equities. They also had significantly higher FICO scores and fewer credit lines. In other trials, researchers have found that identical twins make similar investment decisions, even when they are separated. It seems that our financial decisions are shaped, in part, by our genes.
Brain scans predict financial choices
Knutson has used brain scans to predict many different types of financial decisions, from shopping to investment choices. In a study, he scanned the brains of consumers as they were shown different consumer products. He found that the nucleus accumbens, a reward region in the brain, fires when a product is displayed. However, the insula, a fear region of the brain, activates when consumer thought the price for the product was too expensive. He found that indeed neural activity accurately predicted the eventual consumer choice. In another study, he found that activity in the nucleus accumbens predicted whether someone bought a stock. Whereas activation in the insula meant that someone would make a more conservative decision, like buying a bond.
It’s one thing to predict one person’s shopping or investment decisions. But can brain scans be used to forecast the entire market? Neuroeconomist Paul Glimcher says, “If we had access to that data, when people pick stocks, can these models predict macro-level changes in stock prices from individual-level models of angels picking stocks? There’s reason to believe it might work.” Already, neuromarketing consultancies advise large companies like Google and PepsiCo on which products will do well, and how to position them in the marketplace. Maybe one day there will be boutique equity research consultancies that scan the brains of focus group participants as they answer questions about individual securities, and investors could incorporate these neural inputs as they mull whether to buy or sell a security.
A New Model
By scanning the brains of humans, Knutson has dispelled the notion that we are homo economicus – and that we are indeed complex homo sapiens, driven not just by logical and rational forces but emotional and hormonal ones. We don’t just make financial decisions with the prefrontal cortex, the part of the brain involved in higher faculty, logical thinking. Instead, brain scans show that the reward and fear regions of the brain are deeply involved in how we make financial decisions. While we’re still many years away from the day when investors incorporate brain scans into their forecasting methodology, neuroeconomics has given us a more realistic model of human behavior.
This essay is adapted from a chapter in Coined: The Rich Life of Money And How Its History Has Shaped Us.
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Honestly, they'd do way better with finding out how accretions of dark matter & dark energy affect human consciousness, and whether planetary movements, which affect these accretions, cause things to happen in the masses of mankind.
You sir are onto something - probably is the astrology...
Can brain scans predict the market? BWHAHAHHAA!
How do you brain scan an HFT machine???
Clueless concept.
There are no free markets anymore, just interventions
and
When Central Banks Buy Stocks
OK. I'm game. Which head do I wear it on?
The one that does push-ups until it pukes.
UN THE SUN THE SUN THE SUN THE SUN
http://www.spaceweather.com/images2015/09mar15/m5_blue.jpg?PHPSESSID=1m3...
Have fun.
https://www.youtube.com/watch?v=PHSRbD_69yk
DO NOT LET THE SEC DO THIS THEY WILL CAUSE NATIONWIDE POWER OUTAGES!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
/gridcollapse
"By scanning the brains of humans, Knutson has dispelled the notion that we are homo economicus – and that we are indeed complex homo sapiens, driven not just by logical and rational forces but emotional and hormonal ones. We don’t just make financial decisions with the prefrontal cortex, the part of the brain involved in higher faculty, logical thinking. Instead, brain scans show that the reward and fear regions of the brain are deeply involved in how we make financial decisions."
No shit, Sherlock.
"Neuroeconomic" predictions for non-existent markets. Wonderful stuff.
No shit indeed. I came on here to say "First, you will need to create a free market. Then the rest of this might apply."
Brwraindo: It's got electrolytes!
Oh boy. Welcome to the world of the 80's dark research net.
Ok, here's some links:
http://newsoffice.mit.edu/2014/brain-circuit-links-emotion-memory-0827
http://www.theguardian.com/science/2013/jul/25/false-memory-implanted-mo...
http://www.usatoday.com/story/news/nation/2014/08/27/memories-nature-mit...
http://science.slashdot.org/story/15/03/10/1840247/scientists-insert-a-s...
And, a kicker:
Numerous searches have failed to identify a single co-occurrence of total blindness and schizophrenia. Evidence that blindness causes loss of certain NMDA-receptor functions is balanced by reports of compensatory gains. Connections between visual and anterior cingulate NMDA-receptor systems may help to explain how blindness could protect against schizophrenia
http://journals.cambridge.org/action/displayAbstract?fromPage=online&aid...
That's a weird one, isn't it? TV and LaLaLa land, and the only ones immune are the blind in the land of the One Eyed King?
We could go full psyop warfare on this and run into the land of the weebles (http://strategicstudiesinstitute.army.mil/pubs/parameters/Articles/98spr...)
Or you could also pull into Hz bands and so on, and how audio is also used. Hint: disable your audio output and never watch TV.
Information is a weapon. It can be delivered in many forms. Your mind is a battlefield. And the enemy probably isn't what you're imagining right now. (I feel sorry for them, they are being used against their will).
The only mind they need to study is the NY Fed's trading desk "minds"... They are the only thing that matters in this market
Free will is an illusion. The brain makes the decision and our consciousness 'thinks' about the reasoning - afterwards. Nothing new about that.
There is free will. However, it is difficult to rise above conditioning to appreciate this. Some do this better than others.
Miffed
It used to be if one had a degree in Economics, there was a reasonable chance one had the mental fundamentals to make a few bucks in the market. Now, one needs a degree in both Econ AND the Psychology of Psychopathic Behavior. Mesh the two together, throw in some sublte perception along with lady luck and there is an outside chance one can figure out the only "market" one should be in is Whole Foods, stocking up on sustainable provisons to ride out the coming catastrophic storm.
HOW ABOUT SIGNATURES? LIKE O'BOZO'S ? NO SHIT...CAN'T MAKE THIS STUFF UP, CHECK IT OUT
http://i.imgur.com/EzcYfnx.jpg