Losses can trigger a fightor-flight response from "summary" of Your Money and Your Brain by Jason Zweig
When you lose money, your brain might react as if you are in physical danger. The idea of losing money can trigger a response that is similar to what happens when you are faced with a threat in the wild. This reaction is known as the fight-or-flight response, which is a primal instinct that helps you deal with danger by either confronting it or running away from it. When you experience a financial loss, your brain perceives it as a threat to your well-being, activating the same neural pathways that are involved in the fight-or-flight response. This can lead to a surge of stress hormones like cortisol and adrenaline, which can cloud your judgment and make you more prone to making impulsive decisions. Your body goes into a state of heightened arousal, preparing you to either fight to recover your losses or flee to avoid further harm. This response is deeply ingrained in our evolutionary history, dating back to a time when our ancestors had to deal with physical threats on a daily basis. While the dangers we face today are more likely to be financial rather than physical, our brains have not evolved to differentiate between the two. As a result, we can find ourselves reacting to monetary losses in the same way that we would react to a predator in the wild. Understanding this connection between financial losses and the fight-or-flight response can help you become more aware of your reactions to market fluctuations. By recognizing when your emotions are taking over, you can take a step back and make more rational decisions about your investments. It is important to remember that losses are a normal part of investing and that allowing fear to dictate your actions can lead to even greater losses in the long run. By staying calm and rational in the face of adversity, you can improve your chances of long-term financial success.
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