I studied neuroscience in university and finance is my passion, so whenever I read something that marries the two fields I’m usually especially interested. I’m not alone either, many people recognize that psychology is probably more important in personal finance than math and economic theory. In fact, there are whole fields of study dedicated to understanding them both as they relate to one another (neuroeconomics and behavioural finance).
Anyways, Ken Hawkins from Second Opinion Investor Services sent me a link to an article about a contraption known as The Rationalizer. Essentially, it is a two part device that measures Galvanic Skin Response (GSR) and reports it to the user visually through a device that emits different colours and light patterns depending on the magnitude of the GSR response. The user wears a simple bracelet which measures GSR, which is basically a change in the electrical conductivity of your skin. Last time I checked, GSR alone does not tell you what type of emotion you have, but just the absolute magnitude (or intensity) of that emotion. In other words, “very angry” and “very happy” might be reported as the same GSR level. The bracelet then transmits the results to the visual device (I’m thinking along the lines of those orbs that you can buy that change colour with the daily performance of the stock markets – click here to see what I mean, but I don’t think they are available anymore).
The point behind The Rationalizer is that when GSR reaches a certain point, and hence the visual device reaches a red colour (for example), it might be a signal for the investor to stop trading as studies have shown that under stress and periods of heightened emotion (either way – big winning streak or losing streak) people make different decisions than they normally would. I would not be surprised to see a future device like this on a trading floor – except instead of glowing orbs, it would just be data sent to the guys overseeing the traders. They could use this data to shut down trades for a particular trader on any given day as part of a risk management protocol.
Click here to read the original article that Ken had sent a link to.