The mind and you

The human brain is the most complex mechanism, almost as complex as the universe. Daniel Kahneman talks of System 1 and System 2. The former is the fast thinking, intuitive self, which at the beginning is made up of our limbic brain (simply and graphically called the lizard brain and the monkey brain) but later learns from education and experience to develop insight. And the latter is the conscious thinker, the human brain that does what most other animals are unable to do. This is the learning brain. It's what makes us different from other lesser species. Over time, this learning is transported to System 1, where it becomes instinctive. System 1 is the older, more powerful brain, which gets the first right of way. When it is agitated, the junior System 2 shuts up in a phenomenon called the 'amygdala hijack'. The amygdala is the risk-reward centre of the brain, and when it decides that something is important, all other 'logical' processes of the brain will shut down. That is because the brain is designed for risks that are life-threatening, the only real risk in the jungle. The brain is not designed to handle 'limited risks', which don't kill you, like huge marked-to-market losses in the stock market. This is the source of much of our misbehaviour in the real economic world and our inability to handle uncertainty. The amygdala confuses uncertainty with risk, mistakes volatility (which is but another name for uncertainty) for real and present danger and shuts down our logical processing uni

This article was originally published on February 16, 2018.