Inside the Investor's Brain The Power of Mind Over Money

by Peterson, Richard L.

• ISBN13: 9780470067376
• ISBN10: 0470067373
• Edition: 1st
• Format: Hardcover
• Copyright: 2007-07-09
• Publisher: Wiley

Summary

Unique insights into how the mind of an investor operates and how developing emotional awareness leads to long-term success Inside the Investor's Brain provides readers with specific techniques for understanding their financial psychology, so that they can improve their own performance and learn how to outsmart other investors. Chapter by chapter, author Richard Peterson addresses various mental traps and how they play a role in investing. Through examples, such as a gambling experiment with playing cards, the author shows readers how being aware of the subconscious can separate the smart investors from the average ones. This book also contains descriptions of the work of neuroscientists, financial practitioners, and psychologists, offering an expert's view into the mind of the market. Innovative and accessible, Inside the Investor's Brain gives investors the tools they need to better understand how emotions and mental biases affect the way they manage money and react to market moves. Richard L. Peterson (San Francisco, CA) is a Managing Partner of Market Psychology Consulting, an associate editor at the Journal of Behavioral Finance, and a former trader. Peterson received his medical and bachelors degrees from the University of Texas.

Author Biography

Richard L. Peterson, MD, is a Managing Partner of Market Psychology Consulting, an Associate Editor at the Journal of Behavioral Finance, a psychiatrist, and a former trader. He has?written for a number of publications, including the Journal of Psychology and Financial Markets, and?was a contributor to the book Risk Management: A Modern Perspective. Peterson holds seminars around the world for investment professionals and has two active Web sites: www.marketpsych.com and www.richard.peterson.net. He received his medical and bachelor's degrees from the University of Texas, completed his psychiatry training in the San Francisco Bay Area, and performed postgraduate neuroeconomics research at Stanford University.

Table of Contents

Preface

Acknowledgments

About the Author

Introduction

Foundations

Markets on the Mind

Analysts and Dart Boards

Developing Better Expectations

"The Wisdom of the Collective" Meteorological Anomalies and Other Animal Spirits

Sentiment

Brain Basics

Damasio and the Iowa Gambling Task

The Brain: Structure and Function

The Brain-Damaged Investor

Research Methods

Neuroscience Preview

Origins of Mind

Emotions and Perceptions

Expectations and the Comparator

Counterfactual Comparisons

Beliefs and Expectations

The Placebo Effect

Making Sense of the News

Self-Deception

Emotional Defense Mechanisms and Motivated Reasoning

Neurochemistry

Introducing the Neurotransmitters

Serotonin

Dopamine

Norepinephrine

Opiates

Stress Hormones

Caffeine

GABA, Acetylcholine, and Omega-3 Fatty Acids

The Chemistry of (Financial) Mental Disorders

The Neurochemistry of Financial Performance

Serotonin and Market Bubbles

Recreational Drugs and Alcohol

Alcohol

Cocaine

Feelings and Finances

Intuition

Analysis and Intuition

Investment Practice

What Does Your "Gut" Tell You? Listening Without Thinking

Intuition and Emotion in Investing

Emotional Intelligence

Subliminal Emotion

Stirring the Unconscious

Money Emotions

Emotional Biases

The Difference between Positive and Negative Feelings

Regret as a Self-Fulfilling Prophecy

An Amicable Divorce

Sadness and Disgust

Fear and Anger

Projection Bias

Managing Feelings

Summary

Excitement and Greed

Brokers Kindle Irrational Exuberance

The Anatomy of Stock Hype

Greed: The Basics

The BIAS Task

The Nucleus Accumbens

Excited About a Good Deal

Improving Biased Decision Making

Greed in the Markets

Overconfidence and Hubris

The Psychology of Hubris

Overconfidence

Illusion of Control

Winning Changes the Brain

The Neurochemistry of Exploration

One Who Knows: Christian Siva-Jothy

Confidence-the "Good" Kind

Solutions

Anxiety, Fear, and Nervousness

Climbing a Wall of Worry

Dread in the MRI

Nature versus Nurture

It's All in Your Head

Empathy Gaps

Pain Relief

Investment Lessons

Of Hurricanes, Risk Perceptions, and Opportunity

Summary

Stress and Burnout

Stress

Cramer on Stress

Choking for Rupees

Which Goes Wrong-the Brains or the Brawn? Stress and Trend Perception

Neurochemistry of Stress

Biological Effects of Stress

Adrenaline Junkies

Managing Investment Stress

Summary

Love of Risk

Knowing When to Fold 'Em

Pathological Gambling

The Gambler's Brain

Ought to Know Better

Reducing Gambling

Summary

Personality Factors

The "Big Five

Extraversion versus Introversion

Neuroticism versus Emotional Stability

Conscientiousness versus Impulsiveness

Openness to New Experiences versus Traditionalism

Agreeableness versus Self-interest

The Genetics of Personality

Investing Personality

Neurotic Investors

Extraverted, Open, and Conscientious Investors

Other Personality Research

Trading Psychology

Thinking about Money

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