50. "warrior kings" and "priestly advisers": Aron, "Revisiting Jung's Concept of Innate Sensitiveness."

CHAPTER 7: WHY DID WALL STREET CRASH AND WARREN BUFFETT PROSPER?

1. Just after 7:30 a.m.: Alan's story and the description of Dorn and her house are based on a series of telephone and e-mail interviews with the author, conducted between 2008 and 2010.

2. Financial history is full of examples: There are also many examples from military history. "Hurrah, boys, we've got them!" General Custer famously shouted at the battle of Little Bighorn in 1876-just before his entire unit of two hundred men was wiped out by three thousand Sioux and Cheyenne. General MacArthur advanced in the face of repeated Chinese threats of attack during the Korean War, costing almost 2 million lives with little strategic gain. Stalin refused to believe that the Germans would invade Russia in 1941, even after ninety warnings of an impending attack. See Dominic D. P. Johnson, Overconfidence and War: The Havoc and Glory of Positive Illusions (Cambridge, MA: Harvard University Press, 2004).

3. The AOLTime Warner merger: Nina Monk, Fools Rush In: Steve Case, Jerry Levin, and the Unmaking of AOL Time-Warner (New York: HarperCollins, 2005).

4. They protect themselves better from the downside: The psychology professor Richard Howard, in an interview with the author on November 17, 2008, notes that introverts tend to down-regulate positive emotions and extroverts tend to up-regulate them.

5. our limbic system: Note that these days many scientists dislike the phrase "limbic system." This is because no one really knows which parts of the brain this term refers to. The brain areas included in this system have changed over the years, and today many use the term to mean brain areas that have something to do with emotion. Still, it's a useful shorthand.

6. "No, no, no! Don't do that": See, for example, Ahmad R. Hariri, Susan Y. Bookheimer, and John C. Mazziotta, "Modulating Emotional Responses: Effects of a Neocortical Network on the Limbic Systems," NeuroReport 11 (1999): 4348.

7. what makes an extrovert an extrovert: Richard E. Lucas and Ed Diener, "Cross-Cultural Evidence for the Fundamental Features of Extraversion," Journal of Personality and Social Psychology 79, no. 3 (2000): 45268. See also Michael D. Robinson et al., "Extraversion and Reward-Related Processing: Probing Incentive Motivation in Affective Priming Tasks," Emotion 10, no. 5 (2010): 61526.

8. greater economic, political, and hedonistic ambitions: Joshua Wilt and William Revelle, "Extraversion," in Handbook of Individual Differences in Social Behavior, edited by Mark R. Leary and Rich H. Hoyle (New York: Guilford Press, 2009), 39.

9. The key seems to be positive emotion: See Lucas and Diener, "Cross-Cultural Evidence for the Fundamental Features of Extraversion." See also Daniel Nettle, Personality: What Makes You the Way You Are (New York: Oxford University Press, 2007).

10. The basis of buzz: Richard Depue and Paul Collins, "Neurobiology of the Structure of Personality: Dopamine, Facilitation of Incentive Motivation, and Extraversion," Behavioral and Brain Sciences 22, no. 3 (1999): 491569. See also Nettle, Personality: What Makes You the Way You Are.

11. Dopamine is the "reward chemical": Depue and Collins, "Neurobiology of the Structure of Personality: Dopamine, Facilitation of Incentive Motivation, and Extraversion." See also Nettle, Personality: What Makes You the Way You Are. See also Susan Lang, "Psychologist Finds Dopamine Linked to a Personality Trait and Happiness," Cornell Chronicle 28, no. 10 (1996).

12. early findings have been intriguing: Some of the findings in this line of research have been contradictory or have not been replicated, but together they pose an important avenue of inquiry.

13. In one experiment, Richard Depue: Depue and Collins, "Neurobiology of the Structure of Personality: Dopamine, Facilitation of Incentive Motivation, and Extraversion."

14. extroverts who win gambling games: Michael X. Cohen et al., "Individual Differences in Extraversion and Dopamine Genetics Predict Neural Reward Responses," Cognitive Brain Research 25 (2005): 85161.

15. other research has shown that the medial orbitofrontal cortex: Colin G. DeYoung et al., "Testing Predictions from Personality Neuroscience: Brain Structure and the Big Five," Psychological Science 21, no. 6 (2010): 82028.

16. introverts "have a smaller response" ... "break a leg to get there": Nettle, Personality: What Makes You the Way You Are.

17. "This is great!": Michael J. Beatty et al., "Communication Apprehension as Temperamental Expression: A Communibiological Paradigm," Communication Monographs 65 (1988): reporting that people with high communication apprehension "value moderate ... success less than do those low in the trait."

18. "Everyone a.s.sumes that it's good to accentuate positive emotions": Richard Howard interview with the author, November 17, 2008. Howard also pointed to this interesting take by Roy F. Baumeister et al., "How Emotions Facilitate and Impair Self-Regulation," in Handbook of Emotion Regulation, edited by James J. Gross (New York: Guilford Press, 2009), 422: "positive emotion can sweep aside the normal restraints that promote civilized behavior."

19. Another disadvantage of buzz: Note that this sort of risk-taking behavior is in what Daniel Nettle (Personality: What Makes You the Way You Are, 83) calls "the shared territory" of extroversion and another personality trait, conscientiousness. In some cases conscientiousness is the better predictor.

20. extroverts are more likely than introverts to be killed while driving ... remarry: Nettle, Personality: What Makes You the Way You Are. See also Timo Lajunen, "Personality and Accident Liability: Are Extroversion, Neuroticism and Psychoticism Related to Traffic and Occupational Fatalities?" Personality and Individual Differences 31, no. 8 (2001): 136573.

21. extroverts are more p.r.o.ne than introverts to overconfidence: Peter Schaefer, "Overconfidence and the Big Five," Journal of Research in Personality 38, no. 5 (2004): 47380.

22. better off with more women: See, for example, Sheelah Kolhatkar, "What if Women Ran Wall Street?" New York Magazine, March 21, 2010.

23. a strong predictor of financial risk-taking: Camelia M. Kuhnen and Joan Y. Chiao, "Genetic Determinants of Financial Risk Taking," PLoS ONE 4(2): e4362. doi:10.1371/journal.pone.0004362 (2009). See also Anna Dreber et al., "The 7R Polymorphism in the Dopamine Receptor D4 Gene (DRD4) Is a.s.sociated with Financial Risk Taking in Men." Evolution and Human Behavior 30, no. 2 (2009): 8592.

24. When faced with a low probability of winning: J. P. Roiser et al., "The Effect of Polymorphism at the Serotonin Transporter Gene on Decision-making, Memory and Executive Function in Ecstasy Users and Controls," Psychopharmacology 188 (2006): 21327.

25. Another study, of sixty-four traders: Mark Fenton O'Creevy et al., Traders: Risks, Decisions, and Management in Financial Markets (Oxford, UK: Oxford University Press, 2005), 14243.

26. delaying gratification, a crucial life skill: Jonah Lehrer, "Don't," The New Yorker, May 18, 2009. See also Jacob B. Hirsh et al., "Positive Mood Effects on Delay Discounting," Emotion 10, no. 5 (2010): 71721. See also David Brooks, The Social Animal (New York: Random House, 2011), 124.

27. scientists gave partic.i.p.ants the choice: Samuel McClure et al., "Separate Neural Systems Value Immediate and Delayed Monetary Rewards," Science 306 (2004): 5037.

28. A similar study suggests: Hirsch, "Positive Mood Effects on Delay Discounting."

29. Yet it was just this kind of risk-reward miscalculation: Wall Street's judgment was clouded by a strange brew of (1) lemming-like behavior, (2) the opportunity to earn large transaction fees, (3) the fear of losing market share to compet.i.tors, and (4) the inability to properly balance opportunity against risk.

30. Too much power was concentrated in the hands of aggressive risk-takers: Interview with the author, March 5, 2009.

31. "For twenty years, the DNA": Fareed Zakaria, "There Is a Silver Lining," Newsweek, October 11, 2008.

32. Vincent Kaminski: Steven Pearlstein, "The Art of Managing Risk," The Washington Post, November 8, 2007. See also Alexei Barrionuevo, "Vincent Kaminski: Sounding the Alarm But Unable to Prevail," in "10 Enron Players: Where They Landed After the Fall," The New York Times, January 29, 2006. And see Kurt Eichenwald, Conspiracy of Fools: A True Story (New York: Broadway, 2005), 250.

33. Imagine that you've been invited to Newman's lab: C. M. Patterson and Joseph Newman, "Reflectivity and Learning from Aversive Events: Toward a Psychological Mechanism for the Syndromes of Disinhibition," Psychological Review 100 (1993): 71636. Carriers of the s-variant of the 5HTTLPR polymorphism (which is a.s.sociated with introversion and sensitivity) have also been show to be faster to learn to avoid penalizing stimuli in pa.s.sive avoidance tasks. See E. C. Finger et al., "The Impact of Tryptophan Depletion and 5-HTTLPR Genotype on Pa.s.sive Avoidance and Response Reversal Instrumental Learning Tasks," Neuropsychopharmacology 32 (2007): 20615.

34. introverts are "geared to inspect": John Brebner and Chris Cooper, "Stimulus or Response-Induced Excitation: A Comparison of the Behavior of Introverts and Extroverts," Journal of Research in Personality 12, no. 3 (1978): 30611.

35. more likely you are to learn: Indeed, it's been shown that one of the crucial ways that we learn is to a.n.a.lyze our mistakes. See Jonah Lehrer, How We Decide (New York: Houghton Mifflin Harcourt, 2009), 51.

36. If you force extroverts to pause ... how to behave around warning signals in the future: Interview with the author, November 13, 2008. Another way to understand why some people worry about risks and others ignore them is to go back to the idea of brain networks. In this chapter I focused on the dopamine-driven reward system and its role in delivering life's goodies. But there's a mirror-image brain network, often called the loss avoidance system, whose job is to call our attention to risk. If the reward network chases shiny fruit, the loss avoidance system worries about bad apples.

The loss avoidance system, like the reward network, is a double-edged sword. It can make people anxious, unpleasantly anxious, so anxious that they sit out bull markets while everyone else gets rich. But it also causes them to take fewer stupid risks. This system is mediated in part by a neurotransmitter called serotonin-and when people are given drugs like Prozac (known as selective serotonin reuptake inhibitors) that affect the loss avoidance system, they become more blase about danger. They also become more gregarious. These features coincide uncannily, points out the neurofinance expert Dr. Richard Peterson, with the behavior of irrationally exuberant investors. "The characteristics of decreased threat perception and increased social affiliation [resulting from drugs like Prozac] mirror the decreased risk perception and herding of excessively bullish investors," he writes. "It is as if bubble investors are experiencing a partial deactivation of their brains' loss avoidance systems."

37. relative performance of introverts and extroverts: Dalip k.u.mar and Asha Kapila, "Problem Solving as a Function of Extraversion and Masculinity," Personality and Individual Differences 8, no. 1 (1987): 12932.

38. Extroverts get better grades: Adrian Furnham et al., "Personality, Cognitive Ability, and Beliefs About Intelligence as Predictors of Academic Performance," Learning and Individual Differences 14 (2003): 4966. See also Isabel Briggs Myers and Mary H. McCaulley, MBTI Manual: A Guide to the Development and Use of the Myers-Briggs Type Indicator (Palo Alto, CA: Consulting Psychologists Press, 1985), 116; see also the Myers 1980 study referred to in Allan B. Hill, "Developmental Student Achievement: The Personality Factor," Journal of Psychological Type 9, no. 6 (2006): 7987.

39. 141 college students' knowledge: Eric Rolfhus and Philip Ackerman, "a.s.sessing Individual Differences in Knowledge: Knowledge, Intelligence, and Related Traits," Journal of Educational Psychology 91, no. 3 (1999): 51126.

40. disproportionate numbers of graduate degrees: G. P. Macdaid, M. H. McCaulley, and R. I. Kainz, Atlas of Type Tables (Gainesville, FL: Center for Applications of Psychological Type, 1986), pp. 48385. See also Hill, "Developmental Student Achievement."

41. outperform extroverts on the Watson-Glaser: Joanna Moutafi, Adrian Furnham, and John Crump, "Demographic and Personality Predictors of Intelligence: A Study Using the NEO Personality Inventory and the Myers-Briggs Type Indicator," European Journal of Personality 17, no. 1 (2003): 7984.

42. Introverts are not smarter than extroverts: Author interview with Gerald Matthews, November 24, 2008. See also D. H. Saklofske and D. D. Kostura, "Extraversion-Introversion and Intelligence," Personality and Individual Differences 11, no. 6 (1990): 54751.

43. those performed under time or social pressure: Gerald Matthews and Lisa Dorn, "Cognitive and Attentional Processes in Personality and Intelligence," in International Handbook of Personality and Intelligence, edited by Donald H. Saklofske and Moshe Zeidner (New York: Plenum Press, 1995), 36796. See also Gerald Matthews et al., Personality Traits (Cambridge, UK: Cambridge University Press, 2003), ch. 12.

44. also direct their attention differently ... are asking "what if": Debra L. Johnson et al., "Cerebral Blood Flow and Personality: A Positron Emission Tomography Study," The American Journal of Psychiatry 156 (1999): 25257. See also Lee Tilford Davis and Peder E. Johnson, "An a.s.sessment of Conscious Content as Related to Introversion-Extroversion," Imagination, Cognition and Personality 3, no. 2 (1983).

45. a difficult jigsaw puzzle to solve: Colin Cooper and Richard Taylor, "Personality and Performance on a Frustrating Cognitive Task," Perceptual and Motor Skills 88, no. 3 (1999): 1384.