When it comes to money—whether investing, spending or saving it—what makes the human brain tick? This is the mystery that neuroeconomics seeks to unravel. Finance writer Jason Zweig, author of Your Money and Your Brain: How the New Science of Neuroeconomics Can Help Make You Rich, talks with Jean about some of his findings into how the brain operates when it comes to our cash.
Neuroeconomics is a field of study which looks at neuroscience, economics and psychology to understand how people make choices. According to Jason, neuroscientists have shown that humans have two decision-making systems: The emotional brain and the so-called rational brain. While the rational brain allows people to pause, reflect and make logical decisions, the emotional, impulse-based brain is actually what dominates most of the choices we make, Jason says. "It's reflex that comes first, and in almost any financial situation you're put in, it's that more primitive emotional part of your brain that will move into action first," he says.
However, acting on impulses can often lead to poor financial decisions, Jason says. So how can individuals tame their emotional brain and put their rational brain in the pilot's seat? For starters, Jason says rather than making decisions based on feelings or even judgments, you should have policies or rules that guide your decisions. If the market fluctuates erratically or you see an irresistible sale and you're tempted to listen to your emotions, remind yourself to follow your rules instead, he says. In doing so, Jason says you're more likely to have greater success over time.