Bad investing -- it's in your DNA
By Jason Buckland, Sympatico / MSN Finance
Evidently, there is a science to investing.
I came across an intriguing article the other day from Jason Zweig, the Wall Street Journal’s personal finance zealot, a patient and admittedly conservative financier.
Zweig took to the University of Pittsburgh’s imaging genetics lab, subjecting himself to a chorus of saliva samples and brain scans to find just what role his DNA is playing in his market behaviour. What he uncovered was pretty interesting.
Doctors stuffed Zweig into an fMRI, or functional magnetic resonance imaging, machine, where he faced a simple guessing game to determine how his brain processed and reacted to risk/reward situations.
Zweig viewed a face-down playing card and was told to forecast whether it was higher or lower than a five. If he guessed right enough times, he would win ten bucks.
When his prediction turned out to be correct, he noted, the writer’s ventral striatum – a reward centre of the brain – responded twice as intensely as that of the average person.
Sounds pretty simple, no? But from this one isolated exercise, doctors were able to assess that Zweig’s DNA conditions him to “crave the immediate gratification of quick profit.” Based on data from similar participants, Zweig was said to be the type of investor to characteristically leap at the chance to make “$50 today rather than wait a year to get $100.”
Now, here’s where the intrigue hits. While the majority of our decision-making is derived from our upbringing, education, experience and situational context, it’s said that perhaps 20% of our risk assessment is genetically pre-determined. Zweig is a professional, seasoned investor (a bear market kind of guy, remember) who has learned to overcome what DNA suggests his brain should tell him about certain judgements he should make. But what about the rest of us?
If we aren’t entirely self-aware of our investment tendencies or experienced enough with money to recognize when right is actually right – not what we are biologically programmed to think is right – how can we truly know we will act appropriately with each decision we face?
Perhaps more importantly, what if we trust our finances with an advisor? This isn’t to say money planners are ignorant to the human element of investing, but if doctors imply one-fifth of decision-making is genetically pre-disposed to each individual, that’s bound to suggest a startling frequency of investment choices are at least questionable in their conception, right?
In the end, I guess, enough preparation and mindful thought should theoretically provide an antidote to this reasoning. It is, however, something to keep in mind when an investor offers advice on how to spend your money.
“Remember, no matter how evolved you are personally, we all have blind spots and biases,” writes the Financial DNA blog. “Very often clients ‘eat’ the behaviour of the advisor. So, the advisory becomes dangerous if the advisor is not aware of his or her blind spots.”
Posted by: Greg | Apr 6, 2021 10:24:39 AM
This is a load of crap. Poor investment choises are a result of learned behavior. Just like alcohol consumption. Stop trying to avoid personal responsibility for actions, based on genetics. The difference between alcoholism and poor investing is, we do not have any, none, nil, nada examples of good investment choices. Two economists in the same room will always disagree. How can the average individual be expected to learn anything in that situation. What we learn is: take your best guess and live with it.
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