The Lizard Brain: Why We Ultimately Buy High and Sell Low

By

Home / The Lizard Brain: Why We Ultimately Buy High and Sell Low
We've all heard the term "buy low, sell high". Unfortunately, few actually do it, thanks to the lizard brain. Credit: StockCharts.com

We’ve all heard the term “buy low, sell high”. Unfortunately, few actually do it, courtesy of the lizard brain. Image by StockCharts.com

When you think it through, it makes perfect sense: Our lizard brains may well be the underlying reason for all economic recessions.

According to Chapman College economics professor Terry Burnham, in his book Mean Markets and Lizard Brains, human beings are innately conditioned by nature to continue doing things that appear to have worked before.

Thus, when it comes to investments, we ultimately conduct ourselves in stark opposition to the very thing we’ve heard a thousand times before — buy low, sell high. This pattern creates unsustainable economic bubbles that eventually explode.

How does this phenomena work? To understand it, let’s focus on that alien-looking creature sunning itself on a flat rock outside your house.

Lizard Brains

There aren’t many animals in nature more primitive than the lizard. The earliest lizards are believed to have existed starting 340 million years ago, and although various species have come, gone and evolved over the millennia, lizards remain simple, instinct-driven reptiles.

Likewise, the term “lizard brain” refers to the most primitive portion of the human mind. It drives us to perform rote functions required for survival: eat, exist, and reproduce. It possesses little nuance and requires no introspection to do its job. It is a necessary and critical component of survival, the veritable ground floor of the “fight or flight” instinct.

Financial Choices and Instinctive Behavior

The lizard brain can coexist with, and even exert significant influence upon, the rational sectors of our brains.

For example, let’s assume you’re one of the millions of Americans who almost never play the lottery. The only time you relent is when the jackpot reaches an unimaginable sum, such as when the Powerball hit $590 million this past June. Sound familiar? If so, consider the following: the odds of winning the Powerball jackpot remain approximately one in 175 million, and whether you actually won $590 million or “just” $10 million, you’d still be rich beyond your wildest dreams.

So why race to buy your ticket when the former occurs and scoff with barely-contained disdain at the latter? Because your lizard brain begins to overtake rational thought and sends impulses for you to purchase the incredibly improbable golden ticket as the number reaches certain dizzying heights.

Leave a Comment