Human Instincts and Market Behaviour

By Morningstar |  06-09-17 | 

Here’s something to ponder on.

The brain scan of a cocaine addict experiencing a high is almost indistinguishable from that of an individual playing a game where s/he was about make a lot of money. Both display heightened brain activation in the nucleus accumbens, a part of the brain tied to reward, pleasure, motivation, and addiction.

While winning money has the same effect on a brain as a cocaine addict getting a fix, losing money has the same effect on risk-averse people as a nasty smell or pictures of bodily mutilation.

And why is the purpose of us informing you about it? Because it is part of a bigger picture. Not too long ago, MIT professor Andrew Lo came out with a paper urging investors to view financial markets and institutions from the perspective of evolutionary biology rather than physics. He does not say that the efficient market hypothesis is wrong, but incomplete.

His Adaptive Market Hypothesis, which Financial Times referred to as an emotional investment theory, applies the principles of evolution and behaviour to financial interactions. It puts human instinct at the heart of market behaviour. It combines the rational principles of the efficient market hypothesis with the irrational principles of behavioural finance.

The crux of the theory is that people are mostly rational, but descend into irrationality as a reflexive, adaptive response to heightened volatility.

Sanjoy Bhattacharyya of Fortuna Capital is super excited to present on this subject at the Morningstar Investment Conference. An expert on behavioural finance and an extremely knowledgeable and well-read investor, he is sure to captivate the audience. Don’t miss it!

Do join us for the 7th Morningstar Investment Conference to be held in Mumbai on October 10-11, 2017.

Video: Conference participants discuss their experience in this video

Video: Panelists and Presenters on why they find the conference interesting

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List of Speakers at the Conference

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