It's True: Our Emotions Can Make Us Rich (Or Poor)
Many of us get a little emotional high when we're out spending money.
Now take that idea, and apply it to broader financial decisions. If you are a worrier are you more or less likely to invest money?
Neuroeconomist Camelia Kuhnen knows the answer to that. She studies what goes on inside our heads when we make such decisions.
'We get to ask questions that have never been asked before. And you know what? We can even answer them sometimes. For example: Why do some people take a lot of risks and others don’t? Or: Why are some people confident in their beliefs, and others aren’t?'
In some experiments, Kuhnen puts people inside fMRI machines, gives them investments to choose from, and sees which areas of the brain light up. She also looks at their genes, their personalities, and their credit reports.
Camelia Kuhnen’s research shows that some people are just like this – they’re born risk takers. She points to a gene called DRD4 that regulates dopamine levels in the brain’s reward center.
'Yeah, if you carry the long version of DRD4, you tend to take about 25 percent more risk in your portfolio than other people.'
Academic Interest From Personal Experience
If you google Camelia Kuhnen's name, you'll find out a lot about the academic research she's done into the brain and financial decision making. But what you won't find is much about her personal story.
Kuhnen grew up in Communist Romania during a time when the citizens did not dare to speak about politics for fear an informer would turn them in. In 1989, when she was ten, the country erupted in revolution, ousting the old leadership and ushering in an era of democracy.
Unfortunately for many of her friends and neighbors, the people of Romania were new to the free market and fell prey to a financial Ponzi scheme. Millions were fleeced. As she came to understand what happened, Kuhnen realized that people sometimes invest with their hearts and not with their minds.
Today, she studies the intersection of human nature and finance at the Kenan-Flagler Business School at the University of North Carolina at Chapel Hill. She talked with Frank Stasio about her work Monday January 13, 2014 on The State of Things.