Your Money and Your Brain (Jason Zweig)

Trader's Library #24 · Trading psychology. What happens in your brain when you have an open position.

Author: Jason Zweig · Original: Your Money and Your Brain · Year: 2007 · Usefulness for traders: ★★★★☆

What it's about

A “Wall Street Journal” financial journalist translates neuroeconomics research into investor language: what happens in the brain when we anticipate a gain, take a loss, see patterns or fear risk.

What it gives a trader

The book explains the biological basis of the biases described in the Atlas of cognitive biases: why anticipating a gain is more exciting than the gain itself, why the brain looks for patterns in noise and why a loss hurts more than a gain of the same size pleases.

Lessons for traders

• the brain rewards the anticipation of gain, which drives overtrading
• seeing patterns in randomness is a reflex (illusory correlation, Atlas of biases #10)
• a loss hurts more than a gain pleases (loss aversion, Atlas of biases #34)
• rules written in advance protect you from reactions in the heat of the moment

What to watch out for

Some neuroeconomics research from that period has replicated less well. Treat the details with caution; the general mechanisms are well documented.

Discussion

The discussion takes place in Hetman Capital Club (in Polish). Join the discussion in the Club →

Navigation

← #023 Kostolany on Stock Market Psychology (André Kostolany) · Library index · #025 High Performance Trading (Steve Ward) →

Educational content, not investment advice. The book description is my own summary and assessment, not quotations. Edition details were checked in catalogues and bookshops, and where there was doubt I said so plainly.