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Money: A Love Story

May 28, 2019 
Elesa Zehndorfer

How Thinking About Money Can Affect Clients’ Investing Decisions

Dr. Elesa Zehndorfer
Dr. Elesa Zehndorfer is a financial markets writer and researcher. Author of "Evolution, Politics & Charisma: Why do Populists Win?," "The Physiology of Emotional & Irrational Investing," "Charismatic Leadership: The Role of Charisma in the Global Financial Crisis," and "Leadership: A Critical Introduction." Dr. Zehndorfer is also Research Officer for British Mensa and a Quora Top Writer 2018 & 2017. For more info, please visit elesazehndorfer.com.

There are moments in your clients’ lives when they realize money can indeed buy happiness. It’s the joy they feel when they get the unexpected bonus at work. Or the cash in their hands when they sell a car. Or the pleasure when a stock they took a risk on quickly doubles or triples in value.

Money delivers a rush.

The way they feel at those times is a physiological response to money. That’s because when they think about money, it can exert a neurological effect on their brains so seductive that it literally matches what happens to their bodies when they think about love or sex—some of their most primal of urges. It’s no wonder, then, that research from behavioral economists and neuroscientists confirms it can be difficult to remain rational when it comes to investing behavior. Clients are seeking that rush, time and time again.

My field of study, physiology, sheds fascinating light on how the body deals with these seductive effects. Let’s investigate why evolution hardwires clients to react emotionally rather than rationally when it comes to money, and how they, as investors, can tame their inner beast and resist the allure of quick profits from the next cryptocurrency.1



The Money Effect

From a physiological perspective, when we think about money, it activates the same pathways in our brain that are activated when we think about love or sex.


The Desire of Desire

A client's thoughts and feelings about money likely started when they were a child and found a quarter on the sidewalk, and it continues today when they see an investment unexpectedly increase in value. The rush is particularly alluring, especially when they believe there’s more of it to be made quickly and easily—like during the dot com run-up 20 years ago, or cryptocurrency today.

Money has been referred to as the “desire of desire”.2 From a physiological perspective, a craving or longing for money activates the exact pathways that are stimulated when clients think about or engage with the first flush of love or sex.

Potentially addictive, it powerfully clouds their rational decision-making capacities, flooding their brains with dopamine.2 When this happens, clients can be tempted to ditch their well-planned, long-term strategies in hopes of making a quick gain.

When clients think about money, they experience a stimulating, pleasurable sensation as their limbic system becomes engaged.2,3 As they enjoy daydreams of a retirement spent on a sail boat, or a relaxing lifestyle living by a lake, for example, the neurotransmitters dopamine and oxytocin actively stimulate their brains. The downside? These chemical reactions can motivate them to seek out instant gratification of those dreams as quickly as possible—an instinct that has wreaked havoc on 401(k)s and other retirement accounts the world over.

Investors, who otherwise seem rational, can at times, abandon their long-term strategy to acquire immediate rewards—a new boat, an RV, or a vacation—after being affected by these physiological drivers. Frequently, the “rush” drives riskier decisions (Bitcoin, for example), and can significantly harm long-term outcomes.

Why, you might ask, might clients’ physiology betray them in such a way?

Capturing the Evolutionary Spirit

Gordon Gekko, in Oliver Stone’s 1987 film, “Wall Street,” famously remarked that “Greed, for want of a better word, is good. Greed is right. Greed works. Greed clarifies, cuts through, and captures the essence of the evolutionary spirit.”

And he was right. Mostly.

What we refer to as greed today is better understood as an evolutionary response that allowed us to maximize our chances of survival in ancient times. Greed, it has been said, “begins in the neurochemistry of the brain,”4 representing an intense and selfish desire for something, especially wealth, power, or food. Turn back the clock some 50,000 years to Paleolithic times. This powerful instinct allowed our hunter-gatherer ancestors to protect and provide for their families with the “fear, protection seeking and renewed aggressiveness”5 required of their often short and brutish life, rewarding them with empowering testosterone and pleasure-inducing dopamine and oxytocin when they slayed a beast or successfully defended their tribe.

In modern times, however, these survival instincts can lead clients to make genuinely ill-founded financial decisions because they enliven their desires for immediate gratification, subsequently motivating them to act—even though it’s often better, in an investing context, to stay put. They may also cause clients to doubt sound investing decisions, resulting in needless anxiety and stress.


Working It Out

The great news for investors is that there are ways of tempering these powerfully seductive, primal instincts.

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You Can Help Them Avoid Snap Decisions

Suggest to clients that when they’re feeling the urge to make a quick gain on the latest investment trend that they call you first. Your perspective can help them make decisions that will serve their best interests long term.


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Exercise Can Help Calm Down a Money Rush

There are some other steps clients can take to tamp down their money rush before making a decision. For example, physical exertion stimulates dopamine and acts like a drug in an even more powerful way than money.

Every day physical exertions such as hiking, walking their dog, swimming, or even chopping logs, causes their body to release amphetamine-like chemicals, such as phenethylamine and the cannabinoid anandamine, into their brains that can dampen the desire for dopamine from an unnatural source, such as money.

These solutions are basic, but we’re talking here about basic human physiology. Knee bends, stretching, and deep breathing exercises, an invigorating swim, or simply exploring that new hiking trail all offer excellent means of clearing a client’s head if they feel overwhelmed by financial pressures or if they have a meaningful financial decision to make. In short, just one session of physical exercise—particularly in the great outdoors—can carry profound effects.


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Date Night

Money can be so primally alluring that it can mimic the sensations of romantic attraction,6 so there has never been a more powerful argument to invest in real romantic pursuits with loved ones. A fun date night can help a clients keep their mind off money.


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Sleep on It

Interestingly, rest, to the investor, is as crucial as exertion. As value investor Seth Klarman so sagely noted, “ultimately, nothing should be more important to investors than the ability to sleep soundly at night.” A study backed up this sentiment, finding sleep to be “a biological necessity… without it, there is only so far the band will stretch before it snaps, with both cognitive and emotional consequences.”7

Only one bad night of sleep will inhibit a client's memory and tamper with their ability to integrate new data with existing knowledge.8 It will also ramp up stress hormones, down-regulate dopamine, and even potentially compromise a client's IQ.9 The takeaway? Clients should never make big financial decisions when they’re tired. The phrase “sleep on it” carries literal, powerful connotations when it comes to money.



Something More Exciting

Famed economist John Maynard Keynes first remarked that individuals are driven by “animal spirits,” a salient observation that cuts to the heart of our often-primal relationship with money, and our evolutionary-driven hardwiring as a species that is defined by a daily and, in terms of survival, necessary pursuit of pleasure.

For the modern investor, this often means that even if they have rationally and confidently chosen a long-term, actively managed investing strategy, such as mutual funds, they might still feel anxious, stressed, or seduced by the latest Bitcoin or ETF goldrush. They may worry about losing out on a big profit, which makes them doubt their well informed, albeit less immediately exciting, approach.

The great news is that understanding the physiological mechanisms that lie behind these feelings and emotions can help clients make smart lifestyle choices that will benefit their long-term investing strategies.

Next Steps:

  • Download the client piece below
  • View or email a client version of this web page to clients. Then, if your firm allows it, post the link to your LinkedIn profile. (Please consult with your firm’s legal and compliance teams and your firm’s social media policy)
  • Share the client piece with clients and ask that they if they feel the urge to invest in a hot investment trend, that they call you first.

1 Zehndorfer, E. (2018). The Physiology of Irrational & Emotional Investing: Causes & Solutions. Routledge: London.
2 Lea, S.E.G., Webley, P. (2006). Money as tool, money as drug: The biological psychology of a strong incentive. Behavioral and Brain Sciences. 29, 161-209. Most recent data available.
3 Zink, C.F., Pagnoni, G., Martin-Skurksi, M.E., Chappelow, J.C. & Berns, G.S. (2004). Human striatal responses to monetary reward depend on saliency. Neuron. 42, 509-517. Most recent data available.
4 Schwartz, T. (2010) Dope, Dopes & Dopamine: The Problem with Money. Harvard Business Review. Most recent data available.
5 Lorenz, K.Z. (1963). On Aggression. Routledge.Markiewicz & Weber, 2013. Most recent data available.
6 Lewandowski, G. W., Jr., Aron, A. (2004). Distinguishing arousal from novelty and challenge in initial romantic attraction between strangers. Social Behavior and Personality, 32, 4, 361-372. Most recent data available.
7 As reported in EurekAlert. Press Release. Sleep-deprivation causes an emotional brain ‘disconnect’. Accessed at: https://www.eurekalert.org/pub_releases/2007-10/cp-sca101707.php. Most recent data available.
8 Tamminen, J., Lambon Ralph, M. A., & Lewis, P. A. (2013). The Role of Sleep Spindles and Slow-Wave Activity in Integrating New Information in Semantic Memory. The Journal of Neuroscience, 33, 39, 15376–15381. Most recent data available.
9 Fogel S.M,, Nader R., Cote K.A.,, Smith C.T. (2007) Sleep spindles and learning potential. Behavioral Neuroscience. 121,1–1. Most recent data available.

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The views and opinions expressed herein are those of the author, who is not affiliated with Hartford Funds. The information contained herein should not be construed as investment advice or a recommendation of any product or service nor should it be relied upon to, replace the advice of an investor’s own professional legal, tax and financial advisors.