Neural Bases Of Motivated Reasoning
Lesson summary:
The lesson concept discusses the neurological basis of motivated reasoning. According to research, motivated reasoning is not associated with brain regions linked to cold, dispassionate reasoning or conscious emotional regulation. Instead, it is connected to implicit emotional regulation and psychological defense, marking it as distinct from reasoning when there is no strong emotional stake in the conclusions reached.
An everyday example of this could be how a fan of a particular sports team interprets a game. Even if their team played poorly and lost, the fan, due to their emotional investment in the team, might argue that the loss was down to bad refereeing or unfair conditions. In this scenario, the fan’s motivated reasoning, driven by their emotional attachment to the team, skews their interpretation of the events.
How Neural Bases Of Motivated Reasoning applies to investing and trading:
The findings about motivated reasoning can shed light on why investors and traders might make illogical decisions. Emotionally-charged investments can trigger motivated reasoning, leading individuals to rationalise poor performance and ignore warning signs.
For example, an investor who is emotionally attached to a specific stock because it was a gift from a loved one may resist selling it, even when all market indicators suggest that it would be the best course of action. Instead of objectively analysing the situation, the investor might attribute the poor performance to temporary market conditions or find reasons to believe the stock will rebound. They are not using the brain regions associated with objective reasoning, but rather those connected to emotional regulation and psychological defense. This kind of decision-making can lead to unnecessary financial losses. Therefore, it’s crucial for investors and traders to be aware of the emotional biases that might affect their decisions and strive for objective, emotion-free analysis.