The Hindu Business Line : Placebo effect Placebo effect

The other day, we met an investor who trades for a living. He has been consistently outperforming the market since 2003 until last month. Since then, his losses have increased sizably. It has nothing to do with his trading strategies. His inability to go to the gym has affected his trading! What has mental well-being got to do with economics? One linkage is the “Placebo effect”. What is it?

Triggered by belief

Placebo is Latin for “I will please”. It refers to a treatment that is inert. It can be a sugar pill prescribed by a doctor to mollify a patient who demands medicine. It can be also be a dummy treatment such as exercises or a diet. Importantly, placebo effect is triggered by the person’s belief that the treatment will do her some good.

The equity trader mentioned above is a fitness freak. He goes to the gym after market hours every day. For some reason, he was unable to do this ritual for a month. The exercise could have been his placebo. Lack of it affected his mental health. And that, in turn, impacted his trading behaviour!

It is not that exercise is merely a placebo. It is just that your mind is important for you to derive the best of out of the exercise!

Economic well-being

In a recent experiment conducted in the US, a psychologist studied housekeepers from 7 hotels. A housekeeper’s job is physical, cleaning 15 rooms on an average. Housekeepers’ in 4 hotels were told that their work was exercise enough. The idea was to find out if the subjects’ mind-set would enhance health benefits. Sure enough, a month later, women in the four hotels had lost some weight and lowered their blood pressure.

Clearly then, if your job involves lot of physical activity but your mind does not perceive them as exercise, you do not get the benefit your body is getting and your mental health will improve. Your economic well-being will then not be far behind!

(The author is a Chennai-based investment strategist.)

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