From the course: Personal Finance Tips Weekly

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Neuroeconomics and you

Neuroeconomics and you

From the course: Personal Finance Tips Weekly

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Neuroeconomics and you

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- Until very recently, we had no way of knowing what happens in the brain when we make financial decisions. When human beings failed spectacularly and consistently to behave in ways that economists deemed were optimal, rational, and efficient, new fields of study emerged to investigate this gap. Neuroeconomics bridges the disciplines of psychology, economics, and neuroscience. Researchers use tools like mood-altering drugs, tests for hormone levels, and fMRI imaging to give us a peek inside the black box that is our brain on money. How can we use these findings to help us behave more optimally? Let's look at two ways in which we're predictably irrational: loss aversion and temporal discounting. Human beings are wired to avoid loss, full stop. Studies show that skin conductance, pupil dilation, and heart rate are all higher when we stand to lose a particular amount of money than when we stand to gain the exact same amount. Some estimates show our reactivity level for a loss is more…

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