By Jason Zweig
Book Review
Gary Silverman, CFP®, owns a fee-only financial planning firm in Wichita Falls, Texas. He is the editor of the financial newsletter Personal Money Planning, and writes the newspaper columns Your Money and Biz2Biz.
By now, through quotes, excerpts, or ads, you've likely heard of
Jason Zweig's book, Your Money & Your Brain: How the new
science of neuroeconomics can help make you rich. You probably
already know Zweig as the long-running former Money
magazine writer and the current personal finance columnist for the
Wall Street Journal.
So what is neuroeconomics? Neuroeconomics is the relatively new field of study mixing neuroscience, economics, and psychology. In other words, it's the science of why we do what we do with our money. In this book, Zweig tries to raise our awareness of the biologically and behaviorally induced ills that plague us. In other words, he tries to help us act less stupidly.
To quote the press release that accompanied my review copy (I'm lazy), some of the most significant lessons from neuroeconomics include:
- A monetary loss of gain is not just a financial or psychological outcome, but a biological change that has profound physical effects on the brain and body.
- The neural activity of someone whose investments are making money is indistinguishable from that of someone who is high on cocaine or morphine.
- After two repetitions of a stimulus-like, say, a stock price that goes up one penny twice in a row-the human brain automatically, unconsciously, and uncontrollably expects a third repetition.
- Once people conclude that an investment's returns are "predictable," their brains respond with alarm if that apparent pattern is broken.
- Financial losses are processed in the same areas of the brain that respond to mortal danger.
- Anticipating a gain, and actually receiving it, are processed in entirely different ways in the brain, helping to explain why 'money does not buy happiness.'
- Expecting both good and bad events is often more intense than experiencing them.
While Zweig doesn't get too technical, he does take time now and then to explain the workings of the brain. Your Money & Your Brain is very readable and is full of clear and meaningful stories and examples to clarify each point. This is very helpful as neuroscience is, as you might expect, rather complicated stuff.
At the end of each chapter, Zweig summarizes how investors can take advantage of the knowledge learned and protect themselves from stupid actions. It's the same stuff you probably already tell your clients when they exhibit euphoria or panic. Zweig just adds the "why" to it.
He is certainly not complimentary concerning market strategists, financial analysts, and other investment experts trying to predict the future of the economy or a company. He compares them to priests of ancient times predicting events by examining a sheep's liver.
Though you may argue with some of its conclusions, the book is an entertaining and informative work. And while the book may not live up to its promise of making a person rich, avoiding the foolishness that comes from a well-functioning brain can certainly keep you from becoming too poor.
Simon & Schuster (2008)
$15
