BookWatch: Science shows this is how you can make better investment decisions

There are serious flaws with our decision-making process.

Neuroscientists have used the latest functional magnetic resonance imaging (fMRI) techniques to peek deep into the thinking mind and watch it process data, weigh decisions and make critical choices.

What they see helps explain why we create one successive mess after another in our personal and professional lives. They also see how we can learn to make better choices.

The subjects they study range from baseball players about to take a career-defining swing to snipers having to take a difficult shot under next-to-impossible conditions. By mapping how the brain’s network lights up, the researchers can understand how the brain uses skills, knowledge and memory to make critical decisions.

With names under the microscope like Michael Jordan and Tom Brady, Matt Duffy and the late Chris Kyle, what becomes clear is that the skills required to be exceptional are earned rather than gifted.

To understand this better, consider that when we deal with a very difficult problem the brain uses mental processes called heuristics to solve it. Heuristics are mental shortcuts, developed over time, that focus on specific aspects of complex problems while they ignore others. The reflex action of jerking our hand away from an open flame is a good example. We act immediately upon it without considering the possibility that the action might make us bump into and damage something valuable or knock over something dangerous.

Heuristics are also at work when we make more complex decisions. When our brain responds to signals from our senses, it activates short-term responses designed to help us react fast. They are accompanied by neurochemical changes and biochemical effects. As a result, we can feel anxiety, fear, doubt and uncertainty. These emotions also trigger the release of neurochemicals in our bloodstream. Their effect makes it even harder to remain calm and think, so they further undermine our decision-making when under pressure.

Studies show those who are able to resist the brain’s ancient, short-term reaction systems and make better decisions have undergone a learning process. Rather than lucky or talented, they have become more skilled at recognizing pressure and remaining calm. Calm brains are able to activate higher executive centers and use skill, memory and knowledge more efficiently.

Packed tightly inside our head, the brain has zero redundancy. The circuits, connections and processing centers it uses for one task are the same ones it will use for a similar task in a different context. In psychology this is called “transfer” and it is how we learn from a simulation so we can deal with the real thing.

Similarly, critical assessment and decision-making skills developed in sports or on the battlefield have direct, practical use in the boardroom. Crisis-handling capabilities developed in one area of human activity are applicable to another. Rewiring the brain to respond to critical situations with thoughtfulness and maturity takes many hours of simulation training and thinking.

But here’s the rub: it doesn’t happen without effort.

Anyone who’s run a few miles or lifted a relatively light barbell over and over again knows the feeling of discomfort associated with the effort involved. It happens long before fatigue sets in or the muscles run out of fuel, and it signals the point where we leave our comfort zone behind. The brain works in the exact same way. Unless we have a strong motivation, overcoming the sense of effort involved in training the brain is unlikely to be sustained long enough to rewire it and create fresh sets of more advanced heuristics.

In business we rely on qualifications, certified skills and prior experience as proof of ability. We intuitively understand that planning, training and preparation are at the heart of every achievement. Without the stark pressure stemming from immediate relegation, a drop in performance rankings or losing a battle, however, we rely on implicit skill sets without any clear idea of how it all fits together and to what end.

Nowhere is this felt more keenly than in the cerebral world of money management and investment. fMRI studies have shown that the brain’s reward system underlies the fundamental neural processes of goal evaluation, preference formation, positive motivation and choice behavior. These are the processes that drive the brain’s signal changes during the complex cognitive and emotional tasks associated with making critical decisions on where to invest money and what stocks to sell at the right time.

The mounting body of evidence shows that every decision we make is rooted in the circumstances in which we make it and it is governed by our perception of those circumstances. In turn perception is woven by knowledge, data and past experiences. Knowledge and data are linked to the way our senses (and brain) collect information from the world around us. Past experiences depend directly upon our choices and the actions they lead to. Choices and actions are rooted in motivation and require neural circuits and specific neural pathways to be present. They are responsible for forging new ones and subtly altering the ones that exist. Motivation, in turn, is emotional and stems from what we find to be intensely desirable to us.

St. Martin


To make better decisions, we just need to see things from a different perspective and be able to feel what drives us to do the things we do.

We are starting to understand that everything is linked. Our most brilliant idea and most laudable decisions are equally rooted in the environmental stimuli that we are subjected to. Our actions are determined by our understanding of what is possible and our assessment of what is feasible. There is a direct chain of events that leads from the world around us to the space inside our heads and back again. It is a chain of events that can be influenced directly by the methodologies we bring to bear in our actions, the analytical processes we deploy and the awareness we develop as a result.

Reality, it seems, is subject to our decisions, and the new science of decision-making shows that thinking is something that we can all learn to do better.

David Amerland is the author of “The Sniper Mind: Eliminate Fear, Deal with Uncertainty, and Make Better Decisions.” Follow him on Twitter @DavidAmerland.

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