New findings in the burgeoning field of Neuroeconomics confirm emotions play a huge role in how people invest.
But while advisors look for extreme highs and lows in clients’ lives, studies suggest more subtle everyday emotions can also impact investment decisions.
Researchers at Stanford University have found showing test subjects pictures of exciting images caused them to take risks, because those visuals stimulate action in the nucleus accumbens—an area of the brain associated with risk-taking.
On the flip side, images of scary things like spiders trigger the anterior insula, a part of the brain associated with seeking safety. In a controlled study, people who viewed stimulating images just before they made financial decisions were more likely to choose risky options.
Similarly, a Harvard University study found sadness can reverse the natural human tendency to value things they already own more than things they don’t. Exposing people to tear-jerker film clips for several minutes, however, caused test subjects to place lower value on their own assets.
These findings suggest seemingly trivial events, like what clients read in newspapers, or the conversations they have in the lead-up to a meeting, can influence investment behaviour.