Is Risk Aversion The Seat of Wisdom

I was listening to a podcast by Sam Harris PhD who is an author and controversial type but did his PhD in neuroscience. Although my major in grad school was Biophysics my research in grad school was in Neuroscience in a sort of adjunct bifurcated degree program between Engineering Physics and Neuroscience. I was studying a phenomenon of slow DC wave forms in the brain. AC wave forms (EEG) are common and are in cps (cycles per second) or Hz. These DC wave forms were on the order of seconds per cycle and had independent ipsilateral and contralateral components. The waveform was sensitive to injury, so you could damage the cortex for example in one hemisphere and there would be released a cascade of damage signals over time and the signals were hemisphere independent. My goal was to use this to model strokes since the waveform changes and cascade tracked what seemed to be the same pattern as an evolving stroke, the old “we won’t know how bad it is for a few days”. The “few days of stroke evolution” seemed to be the integral of many discrete smaller stroke-ettes across the hemisphere or sometimes across both hemispheres. The model therefore might be used to create therapeutics that limit stroke-ettes and therefore the severity of the integrated stroke event. This was before CT scan was invented and way before MRI, but it’s advantage was it showed a physiological process not an anatomical process. The research required rat lab access and neurosurgery. I knew how to do it but I couldn’t get funded so I took my EE degree and went out and got a job as an engineer. The book learning part of the degree was rigorous in neuroanatomy and what was known about neurotransmitter distribution at various nucleus and the experience always left me with a deep interest in neuroscience.

I started recently to explore the underlying neuroscience of risk/reward behavior. I also have a degree in psychology and was interested in social psychology which uses game theory (risk/reward) in some experimental models so I knew something about that literature also. In the mid 2000’s the fMRI was developed and you could watch subjects brains light up while presenting them with various “problems” and see what loci seemed to be active in the processing. Risk aversion seems to be in the anterior insula, cyngulate gyrus, posterior medial cortex and ventral striatum among others. The anterior insula sits over the hippocampus which seems responsible for memory management. So it might seem these structures form what I call the seat of wisdom, a place where risk aversion and memory meet at a relatively subcortical level. “DON’T TOUCH THE HOT STOVE!” It only takes once to become wise and there isn’t much rational thought involved. What about reward? That’s widely scattered but a significant center is the Nucleus Accumbens in the basal ganglia. NA’s neuro transmitters are dopamine and serotonin, so when you get reward you get a shot of dopamine and +- serotonin. We all know about the dopamine hit. It turns out serotonin is strongly tied up with hierarchy and pecking order and its “anti-depression” effect may not be anti-depression but to reinvigorate a dormant competition response to try and ascend a social order, which could look like recovery from depression. One other feature is serotonin seems to turn down or off risk aversion.

Psychologists ran experiments where subjects participated in risk/reward games and measured response with fMRI and measured the activity in these nuclei and by using different outcomes could measure risky behavior and risk aversion in gambling situations. Sam Harris’s PhD was on religious belief and he used fMRI to measure believers vs non believers and the same risk aversion nuclei lit up when I looked at his data. Interesting co-incidence? Seat of Wisdom? Rules to live by or not live by? One big point of all of this is these are subcortical structures beyond the reach of pure rational thought. If you look at the white matter there are a lot of paths out of the mid brain up into the cortex and a much smaller amount of tracts from cortex into mid brain, so who is running who?

An example of altered risk aversion is when someone gets drunk. People think drunk people can’t think. but they think just fine. Their reaction times may be off but they can think. What happens with drunk people is they just don’t care. NA gets stimulated and risk aversion gets shut down because of serotonin stimulation into the seat of wisdom. FIRE obsession might be akin to this. You start to save and see your acct accrue interest and it stimulates NA, and it feels good. You like it. In addition the seat of wisdom gets shut down so you move into risky assets. You read somewhere about 4×25 and it’s kind of like a religious belief. You get a good run and since serotonin opens you to hierarchy advancement and shuts off risk aversion you start feeling like the master of the universe and your 50/50 AA goes to 90/10! Now you’re cookin! “I think I’ll start a blog man!” and that further reinforces the neurochemistry and religious belief, but somewhere down in there the seat of wisdom is trying to breakthrough and turn risk aversion back on so you think well maybe not 4% but surely 3.5% or I’ll start a side gig, side gigs pay good and almost never fail! So you do and that’s enough to shut up the seat of wisdom. You chose a buy and hold portfolio (Buffet’s favorite) of cheap index funds and it turns out 2 cheap bond /stock funds live on the efficient frontier so the risk management takes care of itself. The 3 fund isn’t efficient but most of the time it makes money too and you keep plowing money into the portfolio and it seems to grow or in fact grows. Then one day you hit your number you pulled out of thin air and retire on 3.5% because the religion says that’s safe safe compared to those jokers taking 4.5%. You’re still risked at 90% because you’re “comfortable” with that. The problem is as your portfolio grows the safety provided by contribution dramatically diminishes. At retirement that safety is gone once you open the portfolio to withdrawal and SORR and you’re still risked at 90%.

Notice how little of this scenario is based on rational thought and how much is based on sub cortical systems. If anything rationalization is substituted for rational thought.


A little ditty ’bout Jack & Diane
Two American kids growing up in the heart land
Jack he’s gonna be a football star
Diane debutante in the back seat of Jacky’s car
Oh, let it rock, let it roll
Let the bible belt come and save my soul.

Wonder if that plan worked out? Wonder if Jack became a football star and what’s happinin’ with Diane?

4 Replies to “Is Risk Aversion The Seat of Wisdom”

  1. Fascinating take. I did Neuroscience research on auditory spatial working memory in a barn owl model, but was fascinated to learn the circuits and neuroanatomy as well.

    The concept that response to SSRIs could be exploitation of an existing circuit for attempting to ascend social status is mind blowing, I’ll have to think on that.

    And much as I know that FIRE zealots have a bullseye for their newly converted and under-researched enthusiasm, let’s keep in mind that final, empathetic lyric:

    Little ditty about Jack and Diane,
    Two American kids doing the best that they can.

    Give them time for the seat of wisdom to reassert itself.

    1. You can give crustaceans SSRI and induce a reorganization of the pecking order. Its effect crosses species all the way down to ganglion brains. That is how primal and deeply the system extends. There is clearly nothing rational about crustaceans. It may be an underlying cause for the up-rise in tribalism as well. If you have multiple narratives in a competitive population where winning matters get out the cannons. My explanation is a bit simple minded, there is more complexity for sure and I am as susceptible to mid brain control as the next guy which is why I never really accept my conclusions except as stronger or weaker probabilities. I use “seat of wisdom” since it fits but there is no guarantee wisdom is actually wise, it just is a dominating heuristic control. It turns out risk aversion has about 4 x more control than reward on behavior but reward has the ability to modulate risk aversion. It’s the reason you can convince yourself to jump out of a perfectly good airplane. The promise of the rush overcome the lunacy of it all.

      I think Jack and Diane are more interested in the back seat of wisdom

  2. I am risk averse mainly since I prefer simple. However that did not mean that I didn’t take chances with investments. I just knew not to bet the family farm on any strategy.

    Even a so-called “index fund” investing can be crazy risky if you go hog wild and do the 80%+ in equities. I still think anyone who needs a portfolio like that close to retirement just needs to make more money.

    1. Huge wisdom in that statement. There is only so much optimization an individual can do, short of starting a farm to grow your own vittles and putting in a wood stove.

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