Picture this. You are angry at yourself or with your co-workers. This makes you emotionally stressed. Can this stress drive you to take decisions that can hurt your financial health?

The answer depends on how your brain is wired.

It turns out, how you react to anger depends on two neurotransmitters called dopamine and serotonin. Neurotransmitters are chemicals that communicate information through your brain. High level of dopamine keeps you positive and happy, and high level of serotonin provides emotional stability and reduces aggression. The flip side is that low levels of both dopamine and serotonin make you frustrated, negative and upset.

Your adrenalin has a role to play in anger-causing events. High level of adrenalin is associated with excitement. But in the case of anger, it generates a flight or fight response; you either retaliate to your anger-causing event or get over it quickly.

Whether you fight or flight depends on the levels of dopamine and serotonin in your brain. Low levels of these neurotransmitters could typically force you to get upset and retaliate. Whereas high levels of these chemicals in your brain could help you overcome your negative emotions.

Consequences

Now, how you react to anger is important to you. Suppose you are angry with your co-workers, you can go to the extreme of quitting your job.

Anger can also sometimes push you to make unhealthy investment decisions. And in a bid to recover losses as a result of the bad decision, you may commit a series of investment errors.

There is a neurological reason why anger can cause you to make a bad decision.

When you are angry, your body responds as if it is physically threatened. In other words, the fear response (amgydala) in your brain is triggered. You, therefore, think with your emotions, not with your rational brain.

You can safeguard your investments from such emotional responses to anger events.

Investment effect

One way to do so is to create what psychologists call the Ulysses contract. Suffice it to know that you should buy investment products that make it difficult for you to liquidate them till the end of your investment horizon. For instance, investing in provident fund and public provident fund, or buying 10-year tax-free bond when your investment horizon is 10 years. Since such bonds are unlikely to be actively traded, you cannot sell in haste when you are angry!

(The author is the founder of Navera Consulting. Feedback may be sent to > knowledge@thehindu.co.in )

Related Topics
comment COMMENT NOW