Friday, January 16, 2009

The Brain Science of Irrational Exuberance

David Brooks reports:
As Andrew Lo of M.I.T. has demonstrated, if stock traders make a series of apparently good picks, the dopamine released into their brains creates a stupor that causes them to underperceive danger ahead.
FYI, the new and growing field of neuroeconomics makes two appearances in the the latest edition of my favorite textbook. If you have a copy, check the index.

Update: More on the biological roots of the financial crisis.