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the least emotional traders are the most successful

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#1 hiker


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Posted 23 September 2006 - 09:37 PM

these authors have written two books that address the subject directly and indirectly:



NPR interview about the first book:


IBD article about the first book:



A recent MIT study of professional traders confirms this theory: The least emotional were the most successful.

Here's why: "Our brains, like our bodies, reflect the world of our ancestors. In particular, our lizard brains are pattern-seeking, backward-looking systems that allowed us to forage successfully for food, and repeat successful behaviors. This system helped our ancestors survive and reproduce, but financial markets punish such backward-looking decisions. Consequently, our lizard brains tend to make us buy at market tops and sell at market bottoms," writes Burnham.

The 2002 Nobel Prize in Economics was awarded to scholars of this new scientific approach to irrationality. Prof. Daniel Kahneman of Princeton University proved how human decisions differ from those predicted by standard economic theory by researching "decision-making under uncertainty" as far back as the early 1970s. Uncertainty, that primal human concern, more often than not creates bad and harried decisions.

If that isn't enough to convince you to calm down, take a look at the recent headlines concerning bad decision-making and put lizard brains to faces: Martha Stewart (crocodile comes to mind), Warren Buffett (a dinosaur), Hank Greenberg (toad), Kenneth Lay (a chameleon for sure!).

The brain, it seems, evolves from the back to the front. And the front holds our ability to reason. So, when we're engaged in high finance, we should be using the highly evolved, reason-based prefrontal cortex. But -- doh! -- there's no escaping the lizard brain.


Book Description for first book

Everyone from journalists to market pros are turning to behavioral finance to explain, analyze, and predict market direction. In contrast to old-school assumptions of cool-headed rationality, the new behavioral school embraces hot-blooded human irrationality as a core feature of both individuals and financial markets. The 2002 Nobel Prize in Economics was awarded to scholars of this new scientific approach to irrationality. In Mean Markets and Lizard Brains, Terry Burnham, an economist who has a proven ability to translate complex topics into everyday language, reveals the biological causes of irrationality. The human brain contains ancient structures that exert powerful and often unconscious influences on behavior. This "lizard brain" may have helped our ancestors eat and reproduce, but it wreaks havoc with our finances. Going far beyond cataloguing our financial foibles, Dr. Burnham applies this novel approach to all of today's most important financial topics: the stock market, the economy, real estate, bonds, mortgages, inflation, and savings. This broad and scholarly investigation provides an in-depth look at why manias, panics, and crashes happen, and why people are built to want to buy at irrationally high prices and sell at irrationally low prices. Most importantly, by incorporating the new science of irrationality, readers can position themselves to profit from financial markets that often seem downright mean. Mean Markets and Lizard Brains skillfully identifies the craziness that is part of human nature, helps us see it in ourselves, and then shows us how to profit from a world that doesn't always make sense.

Terry Burnham, Ph.D., (left) is an economics professor at the Harvard Business School. He received his Ph.D. in Business Economics from Harvard in 1997, and has an MBA from MIT, a masterís in computer science, and a bachelor's in biophysics from the University of Michigan. Terry has worked on Wall Street and co-founded Progenics, a biotechnology firm with promising treatments for cancer and AIDS. Terry has studied wild chimpanzees in Africa, and served with distinction as a tank driver in the U.S. Marine Corps.

Jay Phelan, Ph.D., (right) is a biology professor at UCLA. He received his Ph.D. in Biology from Harvard in 1995, and master's and bachelor's degrees from Yale and UCLA. His main area of research is evolutionary genetics and aging. He has been featured on BBC and Talk of the Nation, as well as in magazines and newspapers. An accomplished educator, Jay has received accolades and numerous awards for his teaching.

Edited by hiker, 23 September 2006 - 09:39 PM.

#2 Jnavin



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Posted 08 October 2008 - 10:16 AM

The key would be to find a way from the back of your brain to the front. Many methods are available.