The Biology of Investing  book cover
1st Edition

The Biology of Investing

ISBN 9780367443399
Published April 15, 2020 by Routledge
232 Pages 40 B/W Illustrations

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Book Description

Why do people’s financial and economic preferences vary so widely? ‘Nurture’ variables such as socioeconomic factors partially explain these differences, but scientists have been discovering that ‘nature’ also plays an important role. This is the first book to bring together these scientific insights for a holistic view of the role of human biology in financial decision-making.

Geneticists are now examining which genetic markers are associated with financial and economic preferences. Neuroscientists are now determining where in the brain financial decisions are made and how that varies between people. Endocrinologists relate the level of different hormones circulating in the body to financial risk-taking. Researchers are exploring how physiology and environmental conditions influence investment decisions, and how three types of cognitive ability play essential roles in investment success. This exciting and relevant work being done in these academic silos has generally not been transmitted among the scientific areas, or to industry. For the first time, this book integrates all these areas, explaining the myriad ways in which a person’s biology influences their investing decisions.

Financial analysts, advisors, market participants, and upper-level undergraduate and postgraduate students of behavioral finance, behavioral economics, and investing will find this book invaluable, enabling a deeper understanding of investors’ decision-making processes.

To further ensure this new material is accessible to students, PowerPoint slides are available online for instructors’ use.

Table of Contents

List of Tables and Figures

Chapter 1 Biology and Psychology in Finance

Nature vs Nurture

What Can We Learn from the Financial Decisions of Twins?

Investment of Adoptees and the Human Genome

Do Men and Women Invest Differently?


Brain Function and Financial Decisions

The Influence of Hormones on Financial Risk-Taking

Sleep, Coffee, and Investing

How Wellness Influences Financial Decisions

Cognitive Outcomes

The Emotional and Moody Investor

Environmental Factors in Financial Decision-Making

Personality and Investing

Intelligence and Investment Performance

Cognitive Aging and Diminished Decision-Making

A Possible Future


Section I—Nature vs Nurture

Chapter 2 Genetics: Twin Investment Behavior

Twin Research: Nature, Nurture, and Unique Experiences

Saving and Homeownership



Risk Attitudes


Stock Market Participation

Pension Choices

Investing Style: Value versus Growth

Behavioral Biases

Well-being: Giving and Happiness






Chapter 3 More Genetics: Investments of Adoptees and the Human Genome


Introduction to Adoption Studies: Education and Income

Investing Decisions


The Genome-wide Association Method


Risk Aversion




Chapter 4 Do Men and Women Invest Differently?

Determinants of Gender Differences

Gender Biology

Societal Differences

Financial Experimental Research

Retirement Accounts

Trading Behavior

Gender in Corporate Finance

Nature or Social Norms?

Feminism and Masculinity

Financial Literacy

The Gender of Others




Section II—Physiology

Chapter 5 Brain Function and Financial Decisions

The Brain

Anatomy of the Brian


Types of Decision Processes

Economic Decisions and the Brian

Financial Risk and Reward

Evidence from Brain Damage

Biological Foundations of Behavioral Finance


Genoeconomics Research

Genes and Receptors

DRD4 and Financial Decision Making

MAOA and Financial Decision Making




Chapter 6 The Influence of Hormones on Financial Risk Taking


Hormonal Physiology

Circulating Testosterone and Cortisol Levels

Testosterone and Economics Risk Taking

Cortisol and Economic Risk Taking

The Dual Hormone Hypothesis

Testosterone, Cortisol, and Financial Decisions

Testosterone Proxies

2D:4D Ratio and Facial Masculinity

Testosterone Proxies and Economic Risk Taking

Testosterone Proxies and Financial Decision Making

Testosterone Proxy Validity




Chapter 7 Sleep, Coffee, and Investing

Sleep Physiology

Sleep and Economic Risk Taking

Sleep, Economic Risk Taking, and Brain Activation

Sleep and Financial Decisions

Country-wide Analysis

Individual Focused Experiments

Sleep Deprivation, Stimulants and Risk Taking




Chapter 8 How Wellness Influences Financial Choices

Health and Obesity

Exercise and Diet

Physical Health and Financial Decisions

Health and Portfolio Choice

Health and Risk Taking—Experiment Evidence

Employee Health and Company Performance

Society Illness and Stock Market Performance

Mental Health and Financial Decisions

The Impact of Finance and Health




Section III—Cognitive Outcomes

Chapter 9 The Emotional and Moody Investor

Emotions, Mood, and Physiology

Emotions and Economic Decisions

Physiological Response to Economic Decisions

Emotions, Mood, and Experimental Finance

Loss Aversion and Affect

Affect and Ethical Decision Making

Aggregate Mood and the Stock Market




Chapter 10 How Environmental Factors Impact Financial Decisions

Weather, Mood, and Financial Decisions

Weather and Mood

Weather and Experimental Finance

Weather and Stock Markets

Seasonal Affective Disorder

Seasonal Affective Disorder and Physiology

Seasonal Affective Disorder and Experimental Finance

Seasonal Affective Disorder and Stock Markets

Seasonal Affective Disorder and Financial Analysts

Air Pollution, Cognition, and Financial Decisions

Air Pollution and Cognition

Air Pollution and the Stock Market

Allergies and Financial Decisions

Natural Disasters and Financial Decision Making

Natural Disasters and Behavior

Natural Disasters and Financial Decisions

Terrorism and the Stock Market

Terrorism and Behavior

Terrorism and the Stock Market




Chapter 11 The Personality of a Successful Investor

Big Five Personality Traits and Financial Decisions

Big Five Personality Traits

Big Five Personality Traits and Neural Activity

Big Five Personality Traits and Experimental Risk Taking

Big Five Personality Traits and Experimental Investments

Big Five Personality Traits and Investments

Big Five Personality Traits and Corporate Finance

Big Five Personality Traits and Personal Finances

The Dark Triad and Financial Decisions

The Dark Triad

The Dark Triad and Business

The Underlying Conditions of the Dark Triad

The Dark Triad and Financial Decisions

Noncognitive Abilities and Financial Decisions

Noncognitive Abilities

Noncognitive Abilities and Business

Overconfidence, Optimism, and Financial Decisions

Noncognitive Abilities and Financial Decisions




Chapter 12 Types of Intelligence and Investment Performance

Types of Cognitive Processing

Cognitive Processing and Investing

IQ and Investing Decisions

Analytical versus Intuitive Thinking and Investing Decisions

Measuring Analytical and Intuitive Tendencies—Cognitive Reflection

Cognitive Reflection and Behavioral Biases

The Theory of Mind and Investing Decisions

How Each Type of Intelligence Impacts Investing Decisions




Chapter 13 Impaired Cognitive Function and Diminished Decision Making

Aging and Cognitive Ability

Decision Processing and Aging

Aging and Financial Literacy

Financial Knowledge

Seeking Financial Advice

Credit Choices

Aging and Financial Fraud

Cognitive Aging and Financial Fraud

Investment Decisions of Seniors

Aging and Financial Risk Aversion

Aging and Portfolio Construction and Performance

Aging and Behavioral Biases

Improving Decisions of Older Adults

Use It or Lose It






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John R. Nofsinger, Ph.D., is the William H. Seward Chair in International Finance at the University of Alaska Anchorage and is a portfolio manager at Denali Advisors, LLC.

Corey A. Shank, Ph.D. is an Assistant Professor of Finance at Dalton State College.