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Are You Rational When It Comes to Money?

I just read a great blog post by Ben Hayden on Psychology Today. I tried leaving a comment but was enable to due to website difficulties. Instead I’ve reprinted the post here with my comment below. Click on the article title below to go to the original blog post on Psychology Today…

The Decision Tree

Decision-making from all perspectives.

by Ben Hayden, Ph.D., is an Assistant Professor of Brain and Cognitive Sciences at the University of Rochester.

Are you rational?

What do economists mean by rational and irrational?

Published on June 26, 2011 by Ben Y. Hayden, Ph.D. in The Decision Tree

My last post raised a lot of questions about rationality. Rather than reply to them individually, I decided to devote this column to the topic.

I talk to the public a lot about economic discoveries that violate assumptions of rationality. And one thing that always surprises me is just how pleased people are to hear about these violations of rationality. Gleeful even. Relieved to not be the only dummy out there.

It’s surprising that people are so excited because, when it comes to economics, violations of rationality are pretty darn recondite.

An economically rational individual is someone whose preferences obey certain formal rules that insulate them from economists’ bugbear: intransitive preferences. Intransitive preferences means I prefer an apple to an orange, an orange to a pear, and a pear to an apple. This pattern of preferences is distressing to economists because some opportunistic evildoer could come along and offer to trade me an apple for my orange plus a small fee, and then offer me a pear for that same apple plus an additional fee, and then offer me an orange for the pear plus another small fee. Then that evildoer winds up with a free lunch from me. And there’s nothing economists hate more than a free lunch. (Economists would say that this evildoer has turned me into a ‘money pump’).

Bottom of Form

But the real reason this bothers economists goes much deeper than their annoying perennial reminders about free lunches. In the early 20th century, economics struggled to establish itself as a formal and rigorous science. Economists craved respect. (Anyone who has heard economics called the dismal science knows it’s been an uphill battle). Many brilliant economists built the field a solid foundation that was axiomatic - based on a few simple and obvious rules - the same way Euclid did with geometry and Peano did with arithmetic. And to make these axioms, economists had to come up with an economist’s equivalent of mathematically true and false. And they chose the terms rational and irrational.

Aristotle and Plato

Aristotle and Plato Discussing Reason and Emotion

These words were not intended to describe what people do. Humans are not robots; most (but not all) economists know that. Even if we were, our brains are finite. We have to take mental shortcuts. We are approximately rational and even that only sometimes. We economic psychologists love the phase ‘bounded rationality’.

Economics 101 is one of the most popular undergraduate courses in the United States, and it often gives rationality a central place. But we all have money anxieties, so we are predisposed to hear personal judgment coming from our economics professors. Every year, a new crop of students thinks their teachers are criticizing them about how they manage their personal finances.

But that’s not it at all.

Violations of rationality are nothing to be ashamed of. They are like optical illusions in vision: they are universal and they provide clues to how the visual system works. We study irrationality because it gives us essential clues to help us learn how the brain makes economic decisions. And we do that because it leads us to solutions for the real irrationalities: depression, addiction, schizophrenia, and so on.

Invite your local economists to the bar, buy them a round of beer and ask them about it. They’ll admit (in my experience, cheerfully) that when they go to the store, they make the exact same mistakes as the rest of us do. Because we are all human. We are all irrational.

-          Ben

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Dear Ben:

Thanks for the insightful blog post! I have this difficulty with clients frequently - they want to believe the illusion that they are primarily, if not solely, rational individuals. This would be great if it were so, but as you point out, it’s not the case. And I find individuals vary on a spectrum as to how much of the time they spend being rational vs. emotional. My challenge, for years, has been to decipher how to become aware of and train the emotional mind.

 

Different emotions can increase or decrease our rationality, reasoning and focus. Anger, for example, makes us more focused and rational - to a point. Think of anger on a 1 through 10 scale with 1 being calm and 10 be enraged.  Anger can  be useful below a 5. Once you go above a 5, the emotional mind is in charge, rationality goes out the window and we become atavistic and primal.

 

Thank you for pointing out our ubiquitous illusion of rationality.

Best regards,

John L. Schinnerer, Ph.D.

Founder Guide to Self

Award-winning author, blogger and anger management coach

For a free copy of John’s award-winning book on reason and emotion, visit GuideToSelf.com, click on the yellow book icon and enter your name and email.

New Course - Positive Psychology in Clinical Practice July 16, 2011

Just a quick note to let you know that I’m teaching a CEU course for JFKU entitled, Positive Psychology in Clinical Practice.

The course is in Campbell, CA on July 16th, 2011 from 9 am - 5 pm.

For more information, visit the JFKU site at https://secure.jfku.edu/cecart/index.php?act=browse&id=502.

John Schinnerer Ph.D.

To life, love and laughter,

John Schinnerer, Ph.D.

Founder Guide to Self, Inc.

For a FREE PDF copy of John’s award-winning self-help book, Guide to Self: The Beginner’s Guide to Managing Emotion and Thought, just visit www.GuideToSelf.com, click on the yellow book icon on the left side of the page, and enter your name and email address on following page. Once your email address has been verified, you will be emailed a link to download the book in seconds!

Want to Reduce Your Social Anxiety? Increase Your Salt Intake!

For those of you who have seen me speak, teach, or who know me personally, you are well aware that social anxiety is a genetic predisposition that I have learned to manage in my own life. I have learned and teach clients scientifically-proven tools to manage anger and anxiety, such as mindfulness, self-compassion, forgiveness, if-then thinking statements, and more.

Social anxiety is a topic that is very  near and dear to my heart because I have suffered the emotional distress that comes with it.

So I was quite excited to see this study which came out today that shows that higher levels of salt in the diet, while having other negative effects on the body, actually has a positive impact on those of us with social anxiety.

This study demonstrated that higher levels of sodium are associated with increased production of oxytocin (which leads to increased trust, rapport, caring, and connection) and decreased levels of pro-stress hormone angiotensin II. So higher levels of sodium actually decrease the painful feelings of social anxiety!

From an evolutionary perspective this makes tremendous sense. Imagine you are on the plains of Africa, millions of years ago, and you and your tribe are suffering from thirst and dehydration (and sodium levels are rising in the body). In this scenario, an increased level of cooperation and trust is necessary so that everyone in the tribe can get to water and share the water so everyone’s chances of survival increase.

Dying of thirst for connection

Dying of thirst for social connection? Must have oxytocin…

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Higher Levels of Sodium Reduce Your Response to Stress, Study Shows

ScienceDaily (Apr. 5, 2011) — All those salty snacks available at the local tavern might be doing more than increasing your thirst: They could also play a role in suppressing social anxiety.

New research from the University of Cincinnati (UC) shows that elevated levels of sodium blunt the body’s natural responses to stress by inhibiting stress hormones that would otherwise be activated in stressful situations. These hormones are located along the hypothalamic-pituitary-adrenal (HPA) axis, which controls reactions to stress.
The research is reported in the April 6, 2011, issue of The Journal of Neuroscience, the official journal of the Society for Neuroscience.

“We’re calling this the Watering Hole Effect,” says Eric Krause, PhD, a research assistant professor in the basic science division of UC’s department of psychiatry and behavioral neuroscience and first author of the study. “When you’re thirsty, you have to overcome some amount of fear and anxiety to approach a communal water source. And you want to facilitate those interactions — that way everyone can get to the water source.”

Krause and his team dehydrated laboratory rats by giving them sodium chloride, then exposed them to stress. Compared with a control group, the rats that received the sodium chloride secreted fewer stress hormones and also displayed a reduced cardiovascular response to stress.

“Their blood pressure and heart rate did not go up as much in response to stress as the control group’s, and they returned to resting levels more quickly,” says Krause.

“Also, in a social interaction paradigm with two rats interacting, we found them to be more interactive and less socially anxious.”

Further research, through examination of brain and blood samples from the rats, showed that the same hormones that act on kidneys to compensate for dehydration also act on the brain to regulate responsiveness to stressors and social anxiety.

The elevated sodium level, known as hypernatremia, limited stress responses by suppressing the release of the pro-stress hormone angiotensin II. Conversely, it increased the activity of oxytocin, an anti-stress hormone.

Further research, Krause says, will examine these hormones and neurocircuits to investigate their role in social anxiety disorders and autism, a neurological disorder whose characteristics include social impairment.

Oxytocin deficiency has been implicated in autism in previous studies,” says Krause. “We’d like to investigate the possibility that dysregulation in fluid balance during pregnancy could result in autistic disorders.”

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If you would like a FREE PDF copy of John’s award-winning book on managing anxiety and creating more positive emotions in your life, simply visit www.GuideToSelf.com, click on the yellow book icon in the top left corner of the page, then enter your name and email address on the following page. You will be immediately sent an email and given instant access to your copy of Guide to Self: The Beginner’s Guide to Managing Emotion and Thought.  This award-winning self-help book is filled with the latest in scientifically proven tools and tips to help you manage anxiety, depression and anger. It also is loaded with tips and techniques to teach you cutting-edge ways to insert more positive emotions and thoughts in your life.

To life, love and laughter!

John Schinnerer, Ph.D.

Award-winning author and blogger

Founder Guide to Self, Inc.

Anger Management Coach

San Francisco Bay Area

Danville, CA

Story Source:
The above story is reprinted (with editorial adaptations by ScienceDaily staff) from materials provided by University of Cincinnati Academic Health Center, via ScienceDaily and EurekAlert!, a service of AAAS.
________________________________________
Journal Reference:
1. E. G. Krause, A. D. de Kloet, J. N. Flak, M. D. Smeltzer, M. B. Solomon, N. K. Evanson, S. C. Woods, R. R. Sakai, J. P. Herman. Hydration State Controls Stress Responsiveness and Social Behavior. Journal of Neuroscience, 2011; 31 (14): 5470 DOI: 10.1523/JNEUROSCI.6078-10.2011

How Do Emotions Impact Your Goals?

I was recently asked for a quote for www.Livestrong.com for an article on emotions and how they influence our attainment of goals around health and wellness (i.e., optimal human functioning). Here is my short email…

Guilt has a boomerang effect on you
Guilt has a boomerang effect on you

Hi! I hope this note finds you smiling! My Ph.D. is in educational psychology out of UC Berkeley. I currently teach positive psychology (JFKU), coach individuals in anger management and the latest ways to use positive psychology.

I am a self-professed emotion ‘geek’. I have studied emotion
research for a decade now. I love discovering how emotions affect our behaviors, such as health and wellness goals (e.g., losing weight, building muscle, eating better, learning a sport, or building psychological resiliency).

For instance, a recent study showed that guilt has a boomerang effect where it first causes the guilty party to avoid the guilt-inducing situation. Then guilt causes one to approach the situation to make things better. This is the first emotion I am aware of that’s been scientifically shown to have both an approach and an avoidance component to it.

In terms of wellness goals then, a moderate level of guilt (think a 4-6 on a 10 point scale) may work effectively at meeting wellness goals. If you fall off the wagon and feel guilty about it, you are likely to re-approach your goal shortly with a renewed motivation.

Elevation is the positive emotion experienced when you watch another person perform an act of moral courage or high integrity, and was first ‘discovered’ by Jon Haidt. This emotion seems to act as a hidden reset button wiping out doubt, replacing it with feelings of inspiration, hope and optimism. Elevation creates a desire to become a better person and thus, is likely to lend itself to meeting wellness goals.

Please note: When I interviewed Jon Haidt several years ago, he was not ready at that time to label elevation an emotion. More research was needed. From what I understand, both Jon and Dacher Keltner at UC Berkeley are now looking into it. I hope that is helpful for your article!

To life, love, and laughter!

John Schinnerer, Ph.D.

Founder Guide to Self, Inc.

P.S. Want to find out more about your emotional landscape? Want to figure out HOW to turn down the volume on anger, anxiety or sadness? Need to know the latest in anger management tools? Would you like to learn how to cultivate more positive emotions in your daily life? Just visit www.GuideToSelf.com, and click on the yellow book icon. Enter your name and email address for a FREE PDF copy of John’s award-winning book, Guide to Self: The Beginner’s Guide to Managing Emotion and Thought, because when it comes to the emotional mind, we’re all beginners!

Vulnerability - The Birth Place of Shame, Joy, Love and a Meaningful Life - Brene’ Brown

Brene’ Brown is my new hero(ine). You must check out this fantastic talk she did at TED in 2010.

I’m currently ordering numerous copies of her recent book, The Gifts of Imperfection, for all the mothers I know for Mother’s Day.

Emminently readable, vastly significant and life-changing.


If you’d like a FREE copy of my award-winning book, Guide to Self: The Beginner’s Guide to Managing Emotion and Thought, simply go to www.GuideToSelf.com, click on the yellow book icon on the left side of the page and enter your name and email address.

Have a relaxing Mother’s Day!

To life, love and laughter,

John Schinnerer, Ph.D.
Founder Guide to Self, Inc.
Award-winning author and blogger
Anger management coach
http://webangermanagement.com