Emotional Decision Hinder Investing, Research Shows

Source: Today in Investor’s Business Daily stock analysis and business news

Emotion can be your biggest enemy when it comes to investing. In fact, people physically incapable of feeling emotion may have a big edge on other investors, say some scientists.

A study published in June in the journal Psychological Science found that emotionally impaired people are more willing to pursue aggressive growth investing strategies. Researchers asked 41 people with normal IQs to play a simple investment game. Fifteen of the group had suffered lesions on the areas of the brain that affect emotions.

The result? Those with brain damage outperformed those without. The scientists found that emotions led some subjects to avoid risks, even when the potential benefits far outweighed the losses. Antione Bechara, an associate professor of neurology at the University of Iowa, says the best investors are those able to feel no emotions while trading. He called such investors "functional psychopaths." The study’s co-author, Baba Shiv of the Stanford Graduate School of Business, says many CEOs and top lawyers may also share the same ability to suppress emotion in making key decisions.

Antione Bechara, an associate professor of neurology at the University of Iowa, says the best investors are those able to feel no emotions while trading. He called such investors "functional psychopaths."

The study’s co-author, Baba Shiv of the Stanford Graduate School of Business, says many CEOs and top lawyers may also share the same ability to suppress emotion in making key decisions.

"Emotions serve an adaptive role in speeding up the decision-making process," said Shiv. "However, there are circumstances in which a naturally occurring emotional response must be inhibited, so that a deliberate and potentially wiser decision can be made."