Taking too many money risks? Don't blame yourself blame your brain

By Dian Vujovich

Anyone who remembers Flip Wilson probably recalls his “The devil made me do it” line. The comedian used it time and time again to explain behavior he took absolutely no responsibility for. The line always made us laugh. But as we know, there’s often a smidgen of truth in what makes us laugh and now researchers may have found the devil that makes some investors take more risks than others. It resides in our brain.

According to a London study, the interaction between transmitters and chemicals in our brain impact how everyone, including investors, traders and gamblers, react after they’ve lost a heap of money.

Results from it could provide us with a clue about why and how the financial markets collapse, and, in the development of a drug or two to help stop one’s tendency to take on excessive risks.

“Pathological gambling that happens at regular casinos is bad enough, but I think it’s also happening a lot now at Casino Wall Street and Casino City of London,” said Julio Licinio, editor of the Molecular Psychiatry journal which reviewed and published the brain study on Tuesday (Feb.21,2012).

“We like to believe we all have free will and make whatever decisions we want to, but this shows it’s not so easy, ” he said.

Behavioral finance folks have been talking about “loss aversion” behavior for decades but coming up with a treatment, like a pill or drug to control it, well, what fun would that be?

Winners and losers are what make Wall Street hum. Betting one way or another, whether it’s on the direction of the DJIA, the share price of a stock, derivatives or the ponies is natural for those with betting interests. On the other hand, there are a huge number of people without those interests who pretty much run away from risk taking in the financial arena—hence the huge number of investors who have missed the current upswing of the stock market in the collapse that began in 2008. But they typically aren’t included in research studies. They’re probably too boring.

Back to the study.

It was conducted by researchers at the Kyoto University graduate school of medicine in Japan, who gave 19 men a PET scan after completing a gambling problem. According to Reuters, it turns out “those who had low levels of norepinephrine transporters had higher levels of the chemical in a crucial part of their brain – leading them to be less aroused by and less sensitive to the pain of losing money, the researchers found.”

“People with higher levels of transporters and therefore lower levels of norepinephrine or noradrenaline have what is known as “loss aversion,” where they have a more pronounced emotional response to losses compared to gains.”

Okay. Sounds good. But if someone really needs to have an excuse for taking on too many investment risks, I say forget about taking a drug and stick with the tried-and true, “The devil made me do it!”