173. Your Money and Your Brain

Rating:  ☆☆☆1/2

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Author:   Jason Zweig

Genre:  Non-Fiction, Personal Finance, Psychology, Economics

352 pages, published August 1, 2007

Reading Format:  Book

 

Summary

Your Money and Your Brain explores what happens inside our brains when we think about money?  The answer is quite a lot, actually, and some of it isn’t good for our financial health.  Author Jason Zweig, a veteran financial journalist, explains why smart people make stupid financial decisions and what they can do to avoid these mistakes.  Zweig’s investigation touches on the latest research in neuroeconomics, a new discipline that combines psychology, neuroscience, and economics to better understand financial decision making.  He shows why we often misunderstand risk and why we tend to be overconfident about our investment decisions.

 

Quotes 

“The market is a pendulum that forever swings between unsustainable optimism (which makes stocks too expensive) and unjustified pessimism (which makes them too cheap). The Intelligent Investor is a realist who sells to optimists and buys from pessimists.”

 

“The alluring, long-shot chance of a huge gain is the grease that lubricates the machine of innovation.”

  

My Take

In Your Money and Your Brain, Author Jason Zweig explores many different aspects of how our brain has evolved to deal with risk, gain, loss, greed and fear.  When we allow the reptilian amygdala portion brain to control our investing decisions, we get into trouble by doing things like selling after the market has taken a huge drop, thereby locking in our losses.  In the same manner as JL Collins explains in The Simple Path to Wealth, Zweig describes how a simple buy and hold strategy with index funds is the best way to outsmart your counterproductive inclinations.  Anyone who has ever looked back on a financial decision and marveled at their own stupidity will benefit from reading this book.