At the DNA level, small variations in our genetic code make each of us unique. Genetic variations determine the color of our skin, influence our risk of disease, and even affect our investment style.
Investment Style: 30-40% Genetically Programmed
Behavioral neuroscience research has identified several genetic variants that influence perceptions about financial risk.
Researchers at Northwestern University, for example, showed that carriers of the 5-HTPLLR genetic variant perceived stocks to be excessively risky and experienced high anxiety when faced with investment decisions involving potential losses. (1)
A common monoamine oxidase-A (MAOA) gene mutation has been associated with greater risk appetite along with greater liklihood to make profitable financial decisions. Even one’s tendency to hold out for a higher return appears to be underpinned by genetic variance. Reuter et al. found that two genetic variants (ANKK1-DRD2) work in concert to effect one’s emotional response to unfair offers, making an investor more likely to reject low bids. (2,3)
True Insider Information
From why you chase hot stocks to why you’re so quick to close winning positions, your genetic analysis will reveal inate tendencies that unwittingly sabotage your investment potential. Focused on reducing emotion-based decision making, our analysis surveys variations in the genes reported to impact investment-related decisions, including genotype-phenotype studies on:
- Loss aversion – a hypersensitivity to potential losses that, in the long run, reduces returns
- Anchoring – overweighting one piece of information or even a small subset of the wrong variables
- Framing effect – the tendancy to be risk-averse when facing gains, but risk-prone when facing losses
- Delay discounting – shortsightedness and a preference for immediate payoffs that often leads to regret
- Decision latency – a cognitive skill that involves slow, but not reflective, thinking and relies upon focused attention
Your Second Genome
Trillions of microorganisms colonize our gastro-intestinal tract and make an important contribution to our health. High-throughput sequencing techniques and new bioinformatic tools have enabled scientists to discover interactions between our genes, our gut microbiota, and our emotions.
Our genetics and our diet weigh heavily in determining the composition of our gut microbiome. Take for example a genetic variant responsible for sucrose intolerance. The mutation reduces the efficiency of an enzyme that is key to digesting starch and sugars. In turn, this leads to unabsorbed carbohydrates and a deleterious shift in gut microbiota composition.
In the absence of mutations that impair digestive enzyme function, however, plant-based diets promote the enrichment of beneficial microflora and competent immune responses. Nutrient-poor diets, combined with long-term exposure to psychological stress, induce imbalances in the microbiome known as dysbiosis. Dysbiosis is strongly associated with neuroinflammation and impaired stress responses.
The Gut-Brain Axis
Gut microbes produce neurotransmitters that are identical to those produced by humans and that enter the brain, where they influence reward systems, impulsivity, emotions, and cognition. (1)
The gut-brain axis is a two way street. Chronically elevated stress hormones such as cortisol reduce the diversity of gut microorganisms, increase gut permeability, and activate immune-induced low-grade systemic inflammation.
Can the Microbiome Influence Investment Decisions?
Yes. Risk taking is central to decision making and to investing. There is abundant evidence that variation in genes regulating one’s stress response undermine investment decision making. And because loss aversion counterproductively diminishes an investor’s expected returns, it has become one of the most studied decision biases. In an individual, genetically susceptible to poor emotion regulation, gut dysbiosis promotes neuroinflammation, negative emotional states, and poor decision making. Thus, it is the combined effects of one’s genetic variation, gut health, environmental choices and long-term adaptive responses to portfolio stressors that alter the investor’s willingness to take risks for reward.
- Reuter M, Felten A, Penz S, Mainzer A, Markett S, Montag C. The influence of dopaminergic gene variants on decision making in the ultimatum game. Front Hum Neurosci. 2013 Jun 4;7:242.
- Wallace B, Cesarini D, Lichtenstein P, Johannesson M. Heritability of ultimatum game responder behavior. Proc Natl Acad Sci U S A. 2007 Oct 2; 104(40):15631-4.
- Dohmen T, Falk A, Huffman D, Sunde U, Schupp J, et al. Individual risk attitudes: measurement, determinants, and behavioral consequences. Journal of the European Economic Association 2011: 9; 522-550.
- Galland L. The gut microbiome and the brain. J Med Food. 2014 Dec;17(12):1261-72.