March 24, 2009
Expert Financial Advice Cuts Brain Activity

All the people who watch financial news channels and then decide how to invest are probably thinking less than those who do not watch those shows. Brain scans show expert advice reduces brain activity in areas active when doing decision-making.

ATLANTA– A study using functional magnetic resonance imaging (fMRI) shows that expert advice may shut down areas of the brain responsible for decision-making processes, particularly when individuals are trying to evaluate a situation where risk is involved. The study was published in the March 2009 issue of the Public Library of Science (PLOS One).

People just say "Hey, I got answers. I can stop thinking about it." There's a lesson here.

Study participants were asked to make a series of financial choices between a guaranteed payment and a lottery while undergoing fMRI scanning. During portions of the testing, the participants had to make decisions on their own; during other portions, they received advice from a financial expert about which choice to make.

"Results showed that brain regions consistent with decision-making were active in participants when making choices on their own; however, there occurred an offloading of the decision-making process in the presence of expert advice," says Jan B. Engelmann, PhD, Emory research fellow in the Department of Psychiatry and Behavioral Sciences, and first author of the study.

"The expert provided very conservative advice, which in our experiment did not lead to the highest earnings. But the brain activation results suggested that the offloading of decision making was driven by trust in the expert," explains C. Monica Capra, PhD, an economist in the Department of Economics at Emory and coauthor of the study.

"This study indicates that the brain relinquishes responsibility when a trusted authority provides expertise, says Berns. "The problem with this tendency is that it can work to a person's detriment if the trusted source turns out to be incompetent or corrupt."

It is hard to know whether someone is an expert. Those confident-sounding types might just be wishful bettors. Sometimes they stand to profit if they can get more people to listen to them and so they strive to sound credible.

You can not escape the need to think - at least not without paying a price.

Share |      Randall Parker, 2009 March 24 10:58 PM  Brain Economics

James Bowery said at March 25, 2009 7:20 AM:

I wonder how much of this is driven by legacy instincts driving meta-decision neural modules: Modules evolved to conserve calories by shutting down the brain when it was unlikely, in the environment of evolutionary adaptation, that the calories burned by higher brain functions would actually lead to any increased caloric intake? If so, it might be possible to locate those legacy meta-decision modules and detect when they are trying to save us from "wasting" calories on higher brain functions.

Lou Pagnucco said at March 25, 2009 8:02 AM:

Reminds me of the old book "Where Are The Customers Yachts?"

There will always be a market for "expert" financial advice from media gurus, no matter how bad their track records.

Probably the same effect occurs in susceptible people when listening to political, legal, medical and religious authority figures.

th said at March 25, 2009 2:53 PM:

"Reminds me of the old book "Where Are The Customers Yachts?"
Get a better book, typical pop culture bullshit as is stewart and cramer and most of where 99% of america gets its info. People are mentally 180 degrees out of phase with markets, the herd mentality is great when you are getting out, not in. Only a few very savvy speculators actually beat markets of any kind, common stock, commodities, real estate etc., but that doesn't stop them from trying. Real investors do well over time. The key word is speculators, which is what the average "investor" becomes after watching the market go straight up and subsequently watching tv on flipping houses, cramer, et al, they think its easy. When it fails, they blame everyone except themselves, which sells books on how they screwed us, how old is that book? the more things change, the more they blah blah.

DensityDuck said at March 27, 2009 12:30 PM:

This is...not particularly insightful. So you're saying that when someone does some work for me, I don't waste my time duplicating the effort? Whodathunkit? Stay tuned for reports on people's brains showing less activity in the "plumbing" regions when they hire a plumber.

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