Just the thought of money causes your brain to react in ways similar to being high on cocaine. Sehgal's latest book is "Coined: The Rich Life of Money and How Its History Has Shaped Us" (http://goo.gl/AiTXg0).
Read more at BigThink.com: http://bigthink.com/videos/kabir-sehgal-on-money-and-the-brain
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Transcript - So, I looked at the topic of what's happening in the brain when we deal with the money. And there's a part of the brain that activates — it's called the nucleus accumbens. It's deep within the sort of evolutionary, the oldest part of the brain. And they compared people who make money to those who are high on cocaine. And remarkably the brain scans were almost identical because there was activation in this part of the brain called the nucleus accumbens. They also looked at brain scans of the people who are high looking at naked women, dead bodies and money. And what got the most activation? It was money. So money obviously acts as a neural stimulant and it makes us act in very sort of irrational ways. And so the part of the brain that lights up, again the nucleus accumbens, keeps on firing and firing and firing and obviously money excites us.
The nucleus accumbens is part of the reward center in the brain and it's part of the brain that activates when you're excited, when you're aroused, when you're feeling happiness or even joy.
There's many parts of the brain that activate when using money, but this is where it's concentrated, where we process rewards. And brain scientists have been able to scan your brain and they say okay you can invest in a stock that's more risky, a conservative bond, or something that's got no option at all like cash. And so they find that if there's activation in the nucleus accumbens, you're more likely to take the riskier option, meaning you're more likely to choose a stock. Where if there's activation in the insula, which is the anxiety center of the brain, you're more likely to be risk-averse and you're taking on investing in the bonds. So what they find is that obviously what happens in the brain can predict what your financial decision is.
Decision-making, our financial decision-making is what's made in what's called the sub cortical region below the neocortex, what we all know as the subconscious level. For example, when you sit outside on a sunny day, you're more likely to tip more for the waiter. You feel like you're in a better mood. The sun affects you and you tip more money, whereas if you sit inside, you tip less money. So researchers went back and looked at this and they said well one thing that we have really good data on are weather patterns over the last 80 years. We also have really good data on stock market prices over 26 countries. And they found that, sure enough, over 80 years that the markets were up considerably, annualized over 25 percent on sunny days versus those cloudy days. So it goes to show you that our brains are constantly being bombarded by all kinds of effects, the weather. I service investors for a living and I've never heard of professional investor say, "Hm, how does the weather make me feel? How should I invest?" But it's clearly having an impact on us. So, the takeaway here is we should be mindful of how money has a physiological change on us. So when I mention the word money to you, the thought of making money increases your skin conductancy. You're getting excitement from it. So a takeaway is just to be mindful that a lot of our financial decision-making are being made even when we don't think we're making them. Money is having an imperceptible effect on us.
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