Wednesday, 9 July 2014

Brain waves help smart traders. MRI proof.

In lab games with pretend risky-money deals, the few smart traders with big wins were picked and some got an MRI.  The pros seemed to follow Warren Buffet's advice: "Be fearful when others are greedy and be greedy only when others are fearful".  Everyone got a turn-on in one part of their brain (nucleus accumbens where reward processing happens) when sudden rises or falls in trading showed up.  The weak ones bought into rises with "irrational exuberance".  The pros had a low buzz from this risk-reward signal but they also had a signal from a second part of the brain, the insula, which is linked to risk aversion.

Extracted from the story at Science Daily News about Professor Camerer at Caltech.
There's an interesting footnote: The game regularly generated pricing bubbles even though "some economists .. have held that bubbles are rare or are caused by misinformation or hype".

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