The scientists probing the human mind for an investing edge

Recent advances in behavioural finance could give rise to new quant models and strategies

To understand why investors make mistakes, Cary Frydman once put traders and portfolio managers in a brain scanner.

As they made investment decisions, Frydman, an associate professor at the USC Marshall School of Business, noticed that when the stocks they sold subsequently went up, an area of the brain associated with regret began to switch on. The bigger the price increase, the bigger the signal – and the investors that experienced the most regret made the biggest mistakes. Their wounded

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