Your brain may not be wired to play stocks

Do not curse yourself if you have not made moolah in the stock market so far. Your brain is just not wired to predict market bubbles.

Scientists at the Virginia Tech Carilion Research Institute and California Institute of Technology (Caltech) have found that when they simulated market conditions for groups of investors, economic bubbles - in which the price of something could differ greatly from its actual value - invariably formed.

Even more remarkably, the researchers discovered a correlation between specific brain activity patterns and sensitivity to those bubbles.

"Our experiments showed how the collective behaviour of market participants created price bubbles, suggesting that neural activity might offer biomarkers for the evolution of such bubbles," said Read Montague, director of the human neuroimaging laboratory at Virginia Tech Carilion Research Institute.

For the study, Montague and colleagues enrolled 320 people in a market trading simulation game.

Up to 12 participants played in each of 16 market sessions, with two or three participants simultaneously having their brains scanned using functional magnetic resonance imaging (FMRI).

At some point during the 50 trading periods of each session, a price bubble would invariably form and crash.

What surprised the scientists even more were the distinctive brain activity patterns that emerged among the low earners and high earners.

Traders who bought more aggressively based on activity in one brain region - the nucleus accumbens - earned less.

In contrast, the high earners seemed to ignore nucleus accumbens activity in favour of the anterior insular cortex - a brain area active during bodily discomfort and unpleasant emotional states.

Just before a bubble peaked - as their brain scans were revealing an increased activity in the anterior insula - the high earners would begin to sell their shares.

The scientists believe the high earners' brain activity may represent a neural early warning signal of an impending crash.

The paper appeared in the journal Proceedings of the National Academy of Sciences.