Our brains have developed considerably since early primates diverged from other mammals about 85 million years ago. However, increasingly, behavioural psychology studies are showing us how one part of our grey matter has not changed: our ‘lizard brain’.
The lizard brain, or the limbic system (the thing keeping a lizard’s mind ticking), was used by early humans as a primitive ‘fight or flight’ response. It was also a mechanism for weighing up feeding and procreation options.
Fast forward several million decades, and it has been identified this prehistoric part of our brain is now central to the processing of our memory, decision-making, and emotional reactions. Increasingly behavioural science is examining how controlling your lizard brain can have a profound effect on the way we solve complex problems, from finding a life partner to making better investment decisions.
The lizard brain enjoys the short-term game. It prefers immediate and quick-fix solutions. It is more fearful of loss than hopeful of gain. This is great for low-value decisions like crossing the road or choosing a hamburger. But engage your lizard brain with anything more complex, and there can be disastrous consequences.
The problem is the framework of the lizard brain emphasizes a narrow spectrum of information; obsessing about previous data while discounting future uncertain indicators. This ancient structure exerts powerful and often unconscious influences on behaviour; and, in the world of investments, it may explain why experienced investors buy at irrationally high prices and sell at irrationally low ones. Lizard brain thinking may also lurk at the bottom of financial catastrophes.
Behavioural psychologists talk about the lizard brain being essentially resistance. It is that little voice in the back of your head, the one telling you something will never work; the one which worries people will laugh at you. And when under pressure, with the stakes raised and people watching, rather than rationally appraising all the options, the lizard brain instinctively strikes. Behavioural research shows consistently employing an instinctive response in complex, high stake decisions has a negative outcome.
You can read the full article on YourMoney.com – http://www.yourmoney.com/investing/make-better-investment-decisions/