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Your Brain on Money - Winning and Losing

In a world full of skyscrapers, smartphones, and spirulina smoothies, it’s hard to remember that humans are animals. That is, until it comes to how we handle money. We’d like to think that we make well-informed, rational decisions but everyone who’s ever seen the inside of a casino knows otherwise. Much like our animal counterparts, we have some pretty strange habits when it comes to precious resources. Money is no exception.

Wanting and Winning

From back when we were barely more than primordial sludge, it was important for us to want to find things. These things included food, shelter, water and other resources critical to our survival. As humans evolved, so did the system in our brain that makes us want to find things. It’s at the point now where it’s highly sophisticated, but can still make us a little clueless around money.

Jaak Panksepp was the scientist who first coined the idea of the brain having a Seeking System. This is a dopamine circuit in our brains that, when activated, gives us a sense of search, invigoration, or the idea that something exciting is about to happen. Think about the last time you were in a new city and excited to find things to do. It might also be unsurprising that cocaine stimulates this circuit – hence the high-intensity productivity it induces.

Later, Kent Berridge teased out the distinction in this part of the brain – the distinction between wanting and liking. Wanting is essentially the seeking system outlined by Panksepp. Liking is the reward our brain gives us when we’ve found what we’re looking for. It uses brain-produced opioids to get us to pause in our searching behaviour and enjoy what we’ve found.

So what does this have to do with winning money? Well, when you think about our caveman ancestors, it makes sense that our brains would evolve so that searching was much more important than enjoying what we have. Otherwise we’d never get anything done. As scientist Brian Knutson has found in his research, this means that the anticipation of a reward is actually much more exciting to us than receiving the reward. As a result, we’re often searching for rewards, even if we don’t need them.

What’s more, our brains don’t even work well in choosing which rewards we should go after. The bigger the potential profit is, the more aroused our wanting system is. However, if the probability of gaining that reward decreases - for example, from 1/100 to 1/1000, our anticipation of that reward doesn’t decrease accordingly. This is because the more emotional part of our brain (the limbic system) is immediately excited by the prospect of a big payout, regardless of the stakes. It takes a little longer for the more logical part of our brain (the prefrontal cortex) to kick in and force us to think a decision through. As Neuroeconomics expert Jason Zweig puts it, “when possibility is in the room, probability goes out the window”


Pain is an important teacher. From a young age, it teaches us what is safe to eat or touch, and what to avoid (like a hot stove). We learn which actions to take in order to avoid pain. Loss is very similar. On a biological level, it makes sense that we don’t like to lose: throughout most of human history, a loss of resources or loss of standing in a social group could have cost us our lives. On a more modern level, we all know that losing feels awful, especially when we’re losing money. It’s not just emotional, either: losing money activates the same part of the brain that is activated when we feel physical pain.

As a result of this pain, we experience something called loss aversion. Loss aversion is when we preferentially tailor our actions to avoid losing as opposed to tailoring our actions towards a win. For example, we’ll jump to pay a credit card on time if a fine is threatened, but we won’t necessarily take advantage of all the special offers on that same credit card.

We also tend to make worse decisions if we feel that we don’t have enough money or that a massive loss is imminent. This is referred to as the scarcity mindset. We go into full fight or flight mode and start making desperate decisions to avoid further losses, even if they’re bad decisions. In fact, we can lose up to 14 IQ points when anticipating scarcity. The parts of our brain responsible for assessing our long-term options are much less engaged in this mindset, and we focus on what feels right in the present moment. For example, you might find yourself taking out a loan instead of digging into your savings. While this might feel better at the time because you’re not losing your “own” money, it ultimately results in a higher loss as you repay with interest.

The best lesson to learn from all of this is, if you’re making a risky financial decision or you’re blindsided by a large bill or fine, simply take a moment before deciding. Go for a walk, hit the gym, call your dad. Wait until the excitement or panic subsides and then assess your options. You’ll thank yourself in the long run as you start playing to win instead of playing not to lose.

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