Using sophisticated MRI technology, various behavioral finance and neuroeconomic gurus have been looking deep into the decision-making activities of the investor’s brain. What they’ve discovered was that investors consistently make decisions using the lower, primitive brain functions—not the rational brain in frontal cortex—as investors we rely on what in ancient oriental cultures is called the “monkey-brain,” and what modern neuroscientists referred to as the “lizard” or “reptilian” brain. In short, the investor’s brain works like heat-seeking missile searching for immediate gratification, making buy, sell and trade decisions based on primitive short-term pleasure-pain motivators that relieve our momentary feelings of fear and greed, and in the process, we suppress, minimize and ignore long-term considerations.

No, it’s not very complimentary, but it is true: Terry Burnham, a former Goldman Sachs trader calls it a “lizard” brain. Clotaire Rapaille, a French neuro-marketing guru generalizes, it’s your “reptilian” brain. And up at Harvard there’s a wiseguy professor who refers to the investor’s primary decision-making tool in even less flattering terms: “Rat” brain!

Lizard? Rat? Reptilian? Get a grip guys, you sound more like some mean-spirited politicians than members of the world’s elite institutions and academies. But we get the point. You’re talking about our primitive brain, which research consistently proves is a very bad tool for making investment decisions … and yet, like addicts, we can’t stop the insanity, we keep using a flawed tool. Yes, you heard right: Your brain is handicapped, your brain is a saboteur costing you big money. In Mean Markets & Lizard Brains, former Goldman trader Terry Burnham says our primitive brain was designed to help our ancestors hunt for food, daily survival stuff. (More)