TUESDAY, March 17, 2009 (Health.com) — Concerned about your plummeting 401(k)? Sick to your stomach over a risky investment? The best thing for your nerves—and your financial future—may be to think like a Wall Street trader, suggests new research.
Yes, the financial industry’s seemingly cavalier attitude about other people’s money is probably one of the reasons you’re stressed in the first place. But researchers say those hurt by the current financial crisis may be able to improve their outlook by adopting a similar way of thinking.
In a study published this week in the Proceedings of the National Academy of Sciences, 59 participants were given a sum of money and asked to choose between taking a gamble where they could win or lose (for example, a 50/50 chance of getting $10 or losing $10) or breaking even on a sure thing. Most of the time, the volunteers chose the sure thing, says study co-author Elizabeth Phelps, PhD.
That’s because most people aren’t crazy about taking risks with their money, says Phelps, a professor of psychology and director of the Phelps Lab at the New York University Center for Neuroscience. For many people, the fear of a potential loss outweighs the feel-good emotion of a potential gain. These types of people tend to have an emotional and physical reaction when they do lose money—making them less likely to take risks at all.
Traders, on the other hand, are generally less risk averse because they deal with losses every day; they work with large portfolios of stocks tend to look at the long-term, bigger picture, rather than focusing too much on individual, day-to-day ups and downs.
Next page: Think like a trader? No sweat.
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