Money and the Brain

I just recently completed an article on financial history, and was curious to turn the lens inward, and take a brief exploration into how modern finance has interacted with the human psyche. Some of the references in this little thought stem from the article.

Chief among our problems is the fact that the human psyche has not evolved at the same pace as the rapid evolution we explored. Reading The Psychology of Money recently, which touches on loss aversion, risk, and the pitfalls of comparison has made this abundantly clear¹.

The personal exchanges and relationships in Ancient Sumer, the trust and stamp of approval of prominent Italian merchants, both could be understood and internalized relatively well. Even the hectic forums of the Amsterdam stock exchange were deeply personal, with traders and brokers meeting regularly in coffee houses and in the various squares. Today, finance has become entirely impersonalized, and we can place transactions worth millions of dollars without needing to interface with another member of our species at all.

This disconnect can lead to risk-seeking behavior, as the emotional significance of our decisions has diminished. Algorithmic trading and the technological optimization of markets only works to further remove the human element.

At our core though, we are emotional beings, and our alienation from the everyday decision creates huge flares of feeling that manifest themselves in panics and periods of intense FOMO (fear of missing out). The accessibility of the modern market only works to facilitate these panics, as impulsive, emotionally driven decisions can be converted into real financial consequences within milliseconds with the click of a buy or sell.

We have a lot to learn, but all the complexities brought about by our modern world has created a truly exciting time to be alive. I would rather grapple with these intellectually challenging issues, than have to be in Ushar's shoes, contemplating whether the Gods will provide during the next rainfall.

---

Footnotes

1. Another amazing book which I highly recommend is the late Daniel Khanneman's Thinking Fast and Slow, the veritable holy grail on how our human brains really work. ↩