Behavioral Finance

Ken Fisher's book "The Only Three Questions that Still Count" discusses the behavioral aspects to finance.  Just as a Navy Seal needs to master fear in the extreme, investors have their own fear triggers to tame.

The Brain's Limbic System is responsible for the processing of emotions like fear and greed.  The amygdala is part of the old brain and central to emotional control.  The Cortex is the new logical brain, however it receives fear signals twice as slowly as the amygdala.  Controlling the amygdala is key to controlling emotions.

The Navy Seals take this Limbic training to the limits.  The techniques for dealing with fear are considered by Lieutenant Commander Eric Potterat as the Big Four:

1. Goal Setting - small steps itemized in advance
2. Mental Rehearsal - repeat a physical drill in the mind
3. Self Talk - 300-1,000 WPM on average (positive)
4. Arousal Control - breathing techniques, relax, focus

Behavioral Finance can take a page from this book.  Step one is the reason traders like Douglas Busch @chartmaster write out their Complete Game Plan on a daily basis.  

Fear and Greed in Finance Markets: A Clinical Study of Day Traders takes a scientific approach to researching the reactions of day trading on the brain.  Whole organizations are dedicated to the neuroscience of market psychology, companies like Market Sych LLC and publications such as The Journal Of Behavioral Finance.  Even Freakonomics is looks at the topic in an interview with MIT professor Andrew Lo.  TIME magazine list Professor Lo in The World's 100 Most Influential People.

@fisherinvest @MITSloan @chartsmarter