REIT - May/June 2010

Capital Markets

newer threads of thought in the field, neurofinance and emotional intelligence? I mean, how helpful is it to know that the brain scan of an investor expecting to make a gain looks the same as that of a cocaine addict expecting a fix? Shiller: Functional MRI is leading to new insights about the human brain. Ultimately, these insights may transform our understanding of economics and finance. But there are many steps left to be taken before we can make all the connections.

The most helpful insights
from neuroscience for economics
and behavioral finance will come,
if at all, in the next century. Neu-
roscience is extremely important
for medicine, but whether it will
be important for economics and
finance remains to be seen.

REIT: Newer theorists have been
talking for a few years about
integrating emotions into the
investment decision-making
process and using emotions af-
firmatively to make money in the
markets. Investment strategies
based on emotional intelligence
are starting to crop up, such as
a hedge fund that bets against
investor sentiment (Richard
Peterson) and a short-term price
dislocation strategy based on
human behavior, fear and emo-
tions (Zebra Capital). What is
your view of such strategies?
Shiller: Well, it would take
more than reading a book about
emotional intelligence to be suc-
cessful at it. It’s certainly plau-
sible that the best investors have
always succeeded because they
excel in emotional intelligence.

Christopher M. Wright is a regular contributor to REIT.

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