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Fear May Be More Powerful Than Greed

As much as we utilize logical ways to cope with the economy, our brains are wired to work a certain way. I'm no scientist, so I'll let MIT Professor Andrew W. Lo do the explaining. According to Lo, the amygdala controls fear and responds more quickly than parts of the brain that handle cognitive functions. Because of this, he suggests that fear may be a more powerful force than greed.

Simply put, Lo says, "The loss of $1,000 has a much bigger impact than the gain of a $1,000.” People are more willing to take risks when it prevents them from losing money rather than take risks to earn more. A 1970s experiment asked students if they'd choose a sure bet and win $3,000 or an 80 percent chance of winning $4,000. Then, the same group was asked the same question worded differently; would they rather lose $3,000 or accept an 80 percent chance of losing $4,000? In the first scenario, most chose the $3,000 sure bet, and in the second scenario, most went with the riskier option.

Source

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