"Big Finance is Prowling the Limbic System"

N.E. Marsden, an "educator specializing in media research" who blogs at the Huffingtonpost has written a post about recent brain science and how banking has changed since the 80s. The financial sector used to facilitate investment in companies, like buying "a piece of the rock," she says. But now money is made on transactions more and more, and by being able to predict how people will react to certain situations, because the market's reaction sets price.

Gone are the days when investors bought "a piece of the rock" and kept the certificates locked in bank vaults. Today, the fast money bets on moment-to-moment fluctuations, and traders profit on both the dips and spikes. In this casino-like atmosphere, profit often derives from winning transactions, not brick and mortar valuation and growth.

Bloomberg reported in 2004 that Arrowstreet, a $4.4 billion investment firm, had developed quantitative models to "identify and exploit" incidents when investors 1) overreact to news, 2) follow the herd, or 3) fail to account for new information.

Now, Big Finance is prowling the limbic system, a primitive slab of gray matter linked to emotions like pleasure, greed, fear, and cravings -- which begs the question, why?

The 2008 bestseller, Buyology provides an explanation:

"Finance and economic research has hit the wall," explains Andrew Lo, who runs AlphaSimplex Group, a Cambridge, Massachusetts hedge fund firm. "We need to get inside the brain to understand why people make decisions."

Neuromarketing guru Martin Lindstrom, the author of Buyology, goes a step further:

...economic modeling is based on the premise that people behave in predictably rational ways. But...what's beginning to show up in the fledgling world of brain scanning is the enormous influence our emotions have on every decision we make.