“We can’t control our greed”;
“You need to regulate us more”
This is what the CEO of a big bank told Henry Paulson-US Treasury Secretary in 2008.
Dopamine, both a hormone and a neurotransmitter, is used by the brain to send signals to other nerve cells.
While it has several uses, its most publicised impact, has been found in reward-motivated behaviour.
Any anticipation of reward increases the level of dopamine in the body.
Whether its Drugs like cocaine or physical Pleasure through sex, they have the same impact on the nerve system.
The interesting thing however is that the same activity doesn’t increase the dopamine the next time, and that’s where a lot of “rewards systems” tend to fail.
The anticipated outcome (read: reward) determines the acceptance or rejection of the reward induced motivation.
Unless the reward increases/alters substantially, dopamine levels don’t change dramatically, thereby determining the outcome of a motivator.
A study done by Henry W. Chase and Luke Clark, presents another interesting aspect that turns, the whole dopamine theory on its head.
Among Roulette players, dopamine levels increased, not only when the won a big stake but also when they had a near miss, prompting them to play the game again.
The other interesting, but underplayed outcome, that dopamine has as a neurotransmitter is its ability to help avoid “unpleasant experiences”.
Most of the financial advisors can by now relate to this basis their interaction with the clients.
There are 2-prominent categories that you always encounter:
The client who tells you, “I am ready to take RISK, but I want high returns”;
And the other that tells you “I am happy with low returns till the time my capital is safe”
Now as a Wealth Manager, you can use “Dopamine” very effectively by catering to the clients’ nerves by “telling them what they want to hear”;
That can be counter-productive as it might get an initial sale; however the low once the effect of “Dopamine” recedes will risk your relationship;
The important lesson is to use the tool with a defence mechanism that helps reduce the impact of the fall.
As a “Client”, this is even more interesting as most individuals find it difficult to control their impulses when “Dopamine” kicks;
Remember “Cocaine” and “High returns” potentially have the same effect.
The recommendation always is to have your own process; For example
- Questions to be asked on any proposal;
- Documenting the theory for agreeing as well as rejecting a proposal;
- Sleeping-over a proposal before taking a decision either-ways
The proposition might still be compelling;
However at-least you have something to refer to before you make a choice and then you can own that choice.
Irreverentinvestor.com 