Dealing with the new market realities. Two giants of behavioral finance, Yale Professor and "Irrational Exuberance" author Robert Shiller and MIT professor and hedge fund manager Andrew Lo, discuss where the money will be made in the new financial landscape.
Fear, Greed, and Crisis Management: A Neuroscientific Perspective
The alleged fraud perpetrated by Bernard Madoff is a timely and powerful microcosm of the current economic crisis, and it underscores the origin of all financial bubbles and busts: fear and greed.
Using techniques such as magnetic resonance imaging, neuroscientists have documented the fact that monetary gain stimulates the same reward circuitry as cocaine — in both cases, dopamine is released into the nucleus accumbens. Similarly, the threat of financial loss activates the same fight-or-flight circuitry as physical attacks, releasing adrenaline and cortisol into the bloodstream, which results in elevated heart rate, blood pressure, and alertness.