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Mindful : April 2015
be willing to trade theirs for a nother par ticipant ’s, most people say no. Why? Because we’re wired to really, really hate losing. We’re good at a nticipating all the ways our decisions ca n backfire. Imagining the regret of losing a winning ticket we once held is much more pow- erful than imagining failing to trade for a winner. This “loss aversion” ma kes no rational sense, but a great deal of emo- tional sense: the brain is wired to avoid losses, not to win. For example, retirees often spurn stocks in favor of “safe” money market funds with a minuscule rate of return. Many studies suggest the brain treats losses as twice as powerful as gains, and so would rather miss out on $100 in gains than lose $50. That’s not to say that a preference for avoiding losses, even at the cost of missing out on gains, is immutable. A 2014 study in the Journal of Behavioral and Experimental Econom- ics, for instance, found that risk aversion increases the sadder we are, while loss aversion is mitigated by anger. Lesson: ma ke your 401(k) choices when you’re mad, not sad. The brain basis for loss aversion may have to do with the fact that neural circuits mediating fear and anxiety overlap with those involved in economic decisions, finds psychologist Eliza- beth Phelps of New York University. In par ticular, the a mygdala is involved in decisions where uncertainty is high a nd loss is a distinct possibility, such as buy- ing, selling, and investing. The a mygdala also produces the felt sense of fear and a nxiety. Result: deciding whether to buy a n a nnuity, even when you’re well off, ca n generate throat-constricting anxiety. In addition to casting light on classic conundrums in economics, adding mind and brain to the analysis of economic decision-making is nudging homo economicus even fa rther off his pedestal. One would think, or hope, that when peo- ple make decisions about housing they sit down with a calculator and ca refully plot out cash flow, anticipated income and expense, and consult expert sources on interest rates and property values. And then there’s reality. Persona lity tra its—openness to new experiences a nd ideas, conscientiousness, neuroticism, ag reeableness, a nd extraversion—are correlated with preferences for certain kinds of mortgages and basic “own or rent ” decisions, Israeli resea rchers reported in a study of 1,138 people. The super-conscientious tend to prefer fixed over adjustable-rate mortgages, buying over renting, and a 15-yea r mortgage over a 30-yea r and thus higher monthly payments—because conscientiousness is associated with risk avoida nce a nd post- poning g ratification. The highly neurotic make large down payments and prefer buying to renting, which feels less set- tled, researchers led by Danny Ben-Sha- har of Tel Aviv University reported in 2014 in the Journal of Behavioral and Experimental Economics. The research “falls within the scope of a much larger discussion in the social sciences in general, a nd in economics in particular, about what constitutes deci- sion-ma king: the rational view versus that affected by emotional and cognitive biases,” sa id Ben-Shahar, and shows that when it comes to real estate people “act ‘irrationa lly,’ as economists say, and not according to traditional economic assumptions.” For sheer irrationality, however, nothing beats the mag ical thinking that Ayala Arad of Tel Aviv University discov- ered in a 2014 study. She told volunteers they could choose a ny of six amounts of money, from roughly $4 to $6, and put a sticker showing the chosen amount on a blank-faced die. If their sticker came up, when they rolled the die, they’d win that amount. Everyone chose the $6 sticker of course. Not! Almost one-third chose lesser amounts. Maybe, A rad said, they had a gut feeling that the chance of their sticker coming up depended on the choice they made “and feared being punished for greediness by some higher power.” Take that, homo economicus. ● Studies found even having a stack of Monopoly money in sight can make people less likely to help others. neuroeconomists. Their studies have produced ta ntalizing findings that show that our financial behavior is even nuttier tha n anyone imagined. Take that ATM study (Journal of Socio-Economics, Dec 2013). It builds on findings that money, including whether we’ve just handled it or happen to be looking at it, affects how helpful and generous we are. Ea rlier studies had found that when people are primed with money-related phrases, or have a stack of Monopoly money (!) in their periphery, they’re less likely to help others. Thoughts about money have also been found to increase the number of solita ry activities pa rticipants choose. Merely looking at money has made study pa rticipa nts contend more strongly that the poor deserve their fate. Researchers suspect that money activates feelings of self-sufficiency that decrease people’s desire for social contact, including will- ing ness to help others. By studying how emotions shape money decisions, neuroeconomists are making sense of behaviors that classical economists regarded as inexplicably irrational. For instance, good ol’ homo economicus prefers to have more choices; it’s just logical that with more options one of them is more likely to hit your personal sweet spot (all these flavors of Ben & Jerr y’s, love it!). Instead, Angelika Dimoka of Temple University found, real people’s neurons go TILT when con- fronted by too ma ny choices. As infor- mation load increases—Cherry Garcia? Ha zed and Confused?—so does activity in a decision-making/emotions-con- trolling region of the brain called the dorsolateral pref rontal cortex. So fa r, so good. But beyond a certain point— Caramel Sutra? Chubby Hubby?—this region seems to say, I give up, let someone else decide, a nd its activity plummets. Simulta neously, emotion circuits previ- ously held in check by the dorsolatera l prefrontal crackle with activity. No wonder, as anxiety soars, many of us go for vanilla. Another puzzle in economics that ’s yielding to the new approach is the endowment effect: resistance to swap- ping something you have even for a n identical item. When volunteers a re given lottery tickets and asked if they’d 20 mindful April 2015 brain science