Dopamine and Investing
From John Mauldin's weekly newsletter
My friend Jim Williams of Williams Inference Center (http://www.williamsinference.com/) sent me the following note. Jim and his team read thousands of items a week, looking for the odd anomaly, trying to connect the dots to create patterns that are not easily observable. They do this for some of the largest corporations in the world. I found this piece so remarkable I re-print it in its entirety. I am not sure exactly what to make of it, other than it might explain the seeming American addiction to all sorts of manias and risk-taking activities (as well as other immigrant cultures).
"Mirapex was among the top-selling Parkinson's drugs last year, with more than $200 million in sales in the United States. The drug reduces tremors and the slow, stiff movements that are a hallmark of Parkinson's disease. Mirapex belongs to a class of drugs that mimic the effects of dopamine.
"A medical anomaly caught our attention: A recent Mayo Clinic study describes a compulsive gambling problem that developed among many Parkinson patients being treated with dopamine-enhancing medications. This is an unusual side effect.
"Also anomalous is the current U.S. obsession with the game of poker. Computer online gambling is booming, with poker sites alone expected to take in $2 billion this year. More than 50 million people describe themselves as poker players.
"As many as 10 million U.S. adults meet the "problem gambling" criteria, according to the National Council on problem gambling. Kids are hit even harder. The rate of problem gambling among underage players is between two and three times the rate for adults. Health officials want to know whether the damage can be curbed. What separates addictive gamblers from occasional ones? Another American oddity is obesity, which in turn may lead to diabetes.
"The medication for Parkinson's, the desire to gamble and the craving for excess food have one common denominator, dopamine.
"Dopamine is a pleasure-inducing brain chemical, a neurotransmitter that controls action. Dopamine is associated with addiction of all types. Recent studies have indicated that dopamine responds more to unpredictable rewards than to predictable ones. A part of the brain called the striatum where dopamine exists seems to care more about what it cannot predict. In a sense, dopamine produces a need for novelty.
"Dopamine has been associated with the novelty of drinking, gambling and other addictions, but it is also connected with curiosity, adventure, entrepreneurship and accomplishments. An experiment performed by Dr. Gregory Burns, author of a book on dopamine, Satisfaction, shows a positive side of dopamine.
"In this research probe by Dr. Burns, patients connected with MRI brain scanning were given a computer puzzle. When completed successfully, an award of $10 was produced. Under these conditions, the dopamine was high. There was uncertainty as to the outcome. Conversely, when the same patients were given $10, the level of dopamine was very low. Predictability was certain and effort was not required.
"Dopamine helps to produce results in an uncertain world.
"Dr. Peter C. Whybrow, a psychiatrist and author of American Mania postulates that dopamine has produced a manic America. He cites the words of satirist George Carlin, describing this land of puzzling contradictions, 'bigger houses but smaller families; more conveniences but less time; more knowledge but less judgment.' As a practicing psychologist, Dr. Whybrow finds this frenetic chase in America reminiscent of the manic-depression cycles in individual patients.
"Dr. Whybrow connects the excessive dopamine characteristics of America to migration. Approximately 2 percent of any population has enough dopamine to create the curios risk-taking necessary to leave the group. America basically is built through immigration. As a nation we have perhaps 50 percent with high dopamine characteristics. This drive has made America great.
"When explaining the difference between the American and European mind set, Dr. Whybrow cites and observation from Alexis de Tocqueville's famous 1835 treatise, Democracy in America. Tocqueville uses a merchant seaman as a metaphor. The European seaman is prudent when adventuring out to sea. When an unexpected event happens, he returns to port. The American, neglecting such precaution, braves these dangers. He sets sail while the storm is still rumbling. He spreads full sail to the wind. He repairs storm damage as he goes. The American is often shipwrecked, but no other sailor crosses the sea as fast as he does.
"The same mind-set difference between Europe and the United States is visible today. The Washington Post this June states, "In France, not a single enterprise founded in the past 40 years has managed to break into the ranks of the 25 biggest French companies. By comparison, 19 of today's largest U.S. companies didn't exist 4 decades ago. That's why France is looking to the United States for lessons."
"The dopamine drive exists in the United States, not France. Expect a series of American manic excesses and bankruptcies as well as successes."
It will be interesting to see if this can get a comment out of James Montier, whom I often quote as an expert on the psychology of investing. If he does, I will report back.
My friend Jim Williams of Williams Inference Center (http://www.williamsinference.com/) sent me the following note. Jim and his team read thousands of items a week, looking for the odd anomaly, trying to connect the dots to create patterns that are not easily observable. They do this for some of the largest corporations in the world. I found this piece so remarkable I re-print it in its entirety. I am not sure exactly what to make of it, other than it might explain the seeming American addiction to all sorts of manias and risk-taking activities (as well as other immigrant cultures).
"Mirapex was among the top-selling Parkinson's drugs last year, with more than $200 million in sales in the United States. The drug reduces tremors and the slow, stiff movements that are a hallmark of Parkinson's disease. Mirapex belongs to a class of drugs that mimic the effects of dopamine.
"A medical anomaly caught our attention: A recent Mayo Clinic study describes a compulsive gambling problem that developed among many Parkinson patients being treated with dopamine-enhancing medications. This is an unusual side effect.
"Also anomalous is the current U.S. obsession with the game of poker. Computer online gambling is booming, with poker sites alone expected to take in $2 billion this year. More than 50 million people describe themselves as poker players.
"As many as 10 million U.S. adults meet the "problem gambling" criteria, according to the National Council on problem gambling. Kids are hit even harder. The rate of problem gambling among underage players is between two and three times the rate for adults. Health officials want to know whether the damage can be curbed. What separates addictive gamblers from occasional ones? Another American oddity is obesity, which in turn may lead to diabetes.
"The medication for Parkinson's, the desire to gamble and the craving for excess food have one common denominator, dopamine.
"Dopamine is a pleasure-inducing brain chemical, a neurotransmitter that controls action. Dopamine is associated with addiction of all types. Recent studies have indicated that dopamine responds more to unpredictable rewards than to predictable ones. A part of the brain called the striatum where dopamine exists seems to care more about what it cannot predict. In a sense, dopamine produces a need for novelty.
"Dopamine has been associated with the novelty of drinking, gambling and other addictions, but it is also connected with curiosity, adventure, entrepreneurship and accomplishments. An experiment performed by Dr. Gregory Burns, author of a book on dopamine, Satisfaction, shows a positive side of dopamine.
"In this research probe by Dr. Burns, patients connected with MRI brain scanning were given a computer puzzle. When completed successfully, an award of $10 was produced. Under these conditions, the dopamine was high. There was uncertainty as to the outcome. Conversely, when the same patients were given $10, the level of dopamine was very low. Predictability was certain and effort was not required.
"Dopamine helps to produce results in an uncertain world.
"Dr. Peter C. Whybrow, a psychiatrist and author of American Mania postulates that dopamine has produced a manic America. He cites the words of satirist George Carlin, describing this land of puzzling contradictions, 'bigger houses but smaller families; more conveniences but less time; more knowledge but less judgment.' As a practicing psychologist, Dr. Whybrow finds this frenetic chase in America reminiscent of the manic-depression cycles in individual patients.
"Dr. Whybrow connects the excessive dopamine characteristics of America to migration. Approximately 2 percent of any population has enough dopamine to create the curios risk-taking necessary to leave the group. America basically is built through immigration. As a nation we have perhaps 50 percent with high dopamine characteristics. This drive has made America great.
"When explaining the difference between the American and European mind set, Dr. Whybrow cites and observation from Alexis de Tocqueville's famous 1835 treatise, Democracy in America. Tocqueville uses a merchant seaman as a metaphor. The European seaman is prudent when adventuring out to sea. When an unexpected event happens, he returns to port. The American, neglecting such precaution, braves these dangers. He sets sail while the storm is still rumbling. He spreads full sail to the wind. He repairs storm damage as he goes. The American is often shipwrecked, but no other sailor crosses the sea as fast as he does.
"The same mind-set difference between Europe and the United States is visible today. The Washington Post this June states, "In France, not a single enterprise founded in the past 40 years has managed to break into the ranks of the 25 biggest French companies. By comparison, 19 of today's largest U.S. companies didn't exist 4 decades ago. That's why France is looking to the United States for lessons."
"The dopamine drive exists in the United States, not France. Expect a series of American manic excesses and bankruptcies as well as successes."
It will be interesting to see if this can get a comment out of James Montier, whom I often quote as an expert on the psychology of investing. If he does, I will report back.
posted by HeraclitusO at 2:38 pm
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