The chemicals of emotion alter mind and body; personal experience determines what software program (state of mind) to use to process the data, and how to respond. When incoming data resembles threat or danger, it triggers an emotional and biochemical response within a fraction of a second. These chemicals of this emotional state hijack the logical, rational brain—which is a natural survival response. But: Emotion-based states where rational ones should prevail may use information unhelpfully. This automatic alarm system may cause mistaken perception, judgment, and reaction.
A hot stock tip, a business deal gone sour, a family tragedy—any or all may create an alarm response and an emotional state of mind geared for survival rather than the use of logic. Neuroscientists use functional magnetic resonance imaging (fMRI) to study the responses and functioning of the brain to various emotional stimuli. These studies and their findings can be used to help people make decisions that are in their long-term best interest.
Some additional examples of how, at times, logic takes a backseat in financial decision-making. Functional magnetic resonance imaging (fMRI) shows that when people feel they are being treated unfairly, a portion of the midbrain called the interior insula lights up and overwhelms the logical considerations of the prefrontal cortex. This is the same kind of disgust that people have when they encounter a rotten apple. Making an example of people such as Ken Lay and the prosecution of other executives for their crimes does not work and will not work. If it would be sufficient, Ponzi would have been the last to teach us this lesson. To make an example is an abstraction is not how the emotional brain works. The bubble phenomenon is also a by-product of how our brains work. Example, prior knowledge, and logic are not how the brain creates and succumbs to bubbles.