Parkinson’s disease is a progressive disease of the human nervous system (mainly the motor system, this week’s lecture’s topic), which is caused by a degeneration of certain areas of the substantia nigra of the basal ganglia in the midbrain. Because said area of the brain is largely responsible for voluntary initiation of movement, Parkinson’s has the cruel effect of hypokinesia (decreased movements of the body): typical symptoms are slowness of movement, tremors of the hand & jaw (mostly present when the person is at rest), and a general difficulty in initiating movements. As in many processes in the nervous system, the neurotransmitter dopamine plays a central role also in Parkinson’s. Because of the multitude of its mechanisms and Parkinson’s causing a depletion of dopamine, increasing the body’s dopamine levels through administration of L-dopa (a dopamine precursor) alleviates some of the symptoms of Parkinson’s.
Dopamine, however, is also involved in decision-making when facing a risky choice. A sudden increase, or generally increased levels, of dopamine in your brain seems to cause people to make riskier decisions, compared to people with lower dopamine levels/spikes. This seems to be linked with the “reward-effect” in the brain caused by dopamine, which can also lead to addictive behavior.
Linking this finding with the standard treatment for Parkinson’s disease (i.e. increasing dopamine levels), a quite severe consequence becomes apparent: patients receiving treatment for Parkinson’s disease through L-dopa administration can display more pronounced risk-seeking behavior (compared to individuals not taking L-dopa). This effect was shown e.g. in this study.
Besides the terrible physical symptoms caused by Parkinson’s disease, potentially excessive risk-taking in financial markets (especially when not being sufficiently knowledgeable) can also have severe negative financial consequences for an individual. But also for individuals not suffering from Parkinson’s disease, the levels/spikes of dopamine when facing a risky choice can affect decision-making in a negative (more risky) way, as we’ve pointed out already previously in this blog.
Therefore, once again neuroscientific advances can contribute to the understanding of market participants and their actions, which Finance desperately seeks to understand (and model).