Savvy Stock Traders Get Biological Warning Signs

dispatches 

September 2014

Want to be stock market savvy? Listen to your brain. Researchers at Caltech and Virginia Tech Carilion Research Institute used MRI technology to look at the brain activity and behavior of people trading in simulated markets created by the researchers.

When participants noticed that the price of a stock far exceeded the actual value, a warning signal formed in the participants’ brains that caused some to be anxious enough to sell their stock. Those participants who received the signal sold their stocks early and earned the most money. The researchers hypothesize that the insular cortex (also known as the insula) might be what causes the warning signal; the area has been linked to risk aversion in earlier studies. In the high earners, insular cortex activity increased shortly before they sold their stocks. In low earners, insular cortex activity decreased.

 

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