Welcome to our October newsletter.

We look at the reasons why we desire ignorance. And share new research that reveals two different ways that memory works.

Why do investors tend to lose more when they trade more?

And why are some people are more prone to "nomophobia" - that is fear of being away from their mobile phone - than others?

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How do we remember?

A new discovery has been made about the hippocampus, a part of the brain that plays a crucial role in memory. Researchers have found that the hippocampus has two distinct functions: forming associations and making predictions.

Forming associations

The hippocampus encodes memories as sequences of firing neurons. This means that when we experience something new, the hippocampus creates a unique pattern of neuron activity. When we later recall that experience, the hippocampus reactivates the same pattern of neurons.

For example, when we meet someone new, the hippocampus encodes their name, their appearance, and the conversation we have with them. When we later see that person again, the hippocampus reactivates the same pattern of neurons, allowing us to recognize them and remember our previous interaction.

Making predictions

The hippocampus also helps us to make predictions. For example, if we are walking down a familiar street, the hippocampus can predict which turn we will make next. This is because the hippocampus has learned the sequence of events that typically occurs on that street.

Another example of prediction is when we are reading a book. The hippocampus can predict which words are likely to come next, based on the words that have already been read. This allows us to read more quickly and efficiently.

How the two functions work together

The two functions of the hippocampus work together to allow us to learn and remember information, as well as to navigate and make decisions in our everyday lives.

For example, when we are learning a new skill, the hippocampus encodes the steps involved in the skill as a sequence of firing neurons. When we later practice the skill, the hippocampus reactivates the same sequence of neurons, allowing us to perform the skill.

The hippocampus also helps us to make decisions by predicting the consequences of different choices. For example, if we are deciding which restaurant to go to, the hippocampus can predict how likely we are to enjoy the food at each restaurant, based on our previous experiences.

This is why, for example, ads that tell a story are more likely to be remembered and that are more likely to influence people's purchasing decisions. Products (or product instructions) are likely to more easily understood if they are similar to those that customers already use.

Photo by Engin Akyurt

Why we would rather not know

Research published by the American Psychological Association suggests that people often choose ignorance, especially when it allows them to act selfishly while maintaining a positive self-image.

The study, which involved over 6,500 participants, found that 40% of people chose not to learn the consequences of their actions when given the option. This willful ignorance was correlated with less altruism: people were more likely to be generous to others when they were told the consequences of their choices.

The researchers believe that one reason for willful ignorance is that some people behave altruistically because they want to maintain a positive self-image of being an altruistic person. Willful ignorance allows them to maintain that self-image without having to act in an altruistic way.

The study also found that people who chose to learn the consequences of their actions were more likely to be generous than those who were given the information by default. This suggests that truly altruistic people choose to learn the consequences of their actions.

The researchers say that the findings suggest that a lot of the altruistic behaviors we observe are driven by a desire to behave as others expect us to. While most people are willing to do the right thing when they are fully informed of the consequences of their actions, this willingness is not always because people care for others. A part of the reason why people act altruistically is due to societal pressures as well as their desire to view themselves in a good light.

As many consumers may be willfully ignorant of the consequences of their purchase decisions, brands cannot simply rely on consumers to make informed choices. One way to bring consequences of choice to the front of mind is by appealing to consumers' desire to be seen as good people. 

Photo by Olga Burmistrova

Are you afraid of being away from your phone?

Nomophobia is the fear of being away from the possibility of communication by mobile phone. It is a growing problem among mobile phone users, and can have negative consequences for mental and physical health.

Researchers have identified a number of factors that can contribute to the development of nomophobia, including individual psycho-social factors. One of the most important psycho-social factors is interpersonal problem-solving skills.

A recent study investigated the relationship between nomophobia and interpersonal problem-solving skills, emotional intelligence, perceived stress, and self-esteem among university students. The study found that students with better interpersonal problem-solving skills had lower levels of nomophobia.

The study also found that emotional intelligence was indirectly associated with nomophobia through its effect on interpersonal problem-solving skills. This suggests that students with higher emotional intelligence are better able to solve interpersonal problems, which leads to lower levels of nomophobia.

The study also found that emotional intelligence was directly associated with perceived stress. This suggests that students with higher emotional intelligence are better able to manage stress, which may also contribute to lower levels of nomophobia.

Marketers need to be mindful of the fact that some consumers may be anxious or even stressed when they are away from their mobile phones but, as with many behaviours, this will vary depending upon their psychological makeup.

And we see a complex, somewhat paradoxical picture of opposing needs - on the one hand a need to stay connected while also needing to manage nomophobia symptoms.

Photo by Rick Han

Why do investors tend to lose more when they trade more?

This article in the New York Times -  The Baffling Allure of Bad Investment Advice - cites a range of psychological explanations for this phenomenon

Studies on investor behavior have shown that investors tend to make more mistakes the more they trade for a number of reasons, including:
 
Overconfidence. Investors often believe that they have the skills and knowledge to beat the market, even though the vast majority of professional investors are unable to do so. This overconfidence can lead investors to make risky trades without fully understanding the risks involved.

Noise trading. Noise traders are investors who buy and sell stocks based on rumors, speculation, and other irrelevant information. Noise trading can lead to volatility in the market and make it difficult for investors to make informed decisions.

Confirmation bias. Investors tend to seek out information that confirms their existing beliefs, while ignoring information that contradicts their beliefs. This can lead investors to make bad investment decisions, even when they have access to all of the relevant information.

Herding behavior. Investors often follow the crowd and buy stocks that are popular, even if those stocks are overvalued. Herding behavior can lead to bubbles in the market, which can burst and cause investors to lose money.

In addition to these psychological factors, there are also structural factors that can contribute to investor mistakes. For example, trading commissions can eat into investors' returns, and high-frequency traders have an advantage over individual investors due to their access to faster technology and data.

Overall, the research suggests that investors who trade frequently are more likely to make mistakes than investors who buy and hold stocks for the long term. Even with our most valuable decisions, we’re often irrational.

Photo by Mikhail Nilov

As ever, if there's anything we can help with, do get in touch.

James, Patrick and Dan

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