The Hindu Business Line : Why birthdays are depressing

It was my birthday recently and I was expecting a certain book as a present. I did not get the book but received some useful gifts. I began wondering how it would have been had I received the book I wanted. Tracing my emotions, I realised that the stock market behaves the same way when it comes to earnings announcement. Neuroscience seems to have an answer to this behaviour. How?

It is all about the dopamine. This is a naturally produced chemical in our body. It is the cause for our pleasure or depression when we unexpectedly get or do not get what we want.

Suppose I were hoping to get the book myself. My wife, understanding my passion for quirky psychology, gifts that book on my birthday. That would be a surprise — a pleasant one at that. My neural system would release more dopamine and help me enjoy the moment and some beyond.

Less dopamine, less pleasure

If I had expected my wife to gift me the book and she did, it would not have been a surprise. So, my neural network would have released less dopamine. That means less pleasure.

But what happens when I do not get the book as a gift? My neural system goes on strike and stops producing dopamine. And that pushes me into a state of depression, prompting over-reaction at times.

Now, you may be able to relate this to the stock market. Take a mature company such as Infosys. Often, the stock gets hammered when such companies make their earnings announcement. Why?

Surprising investors

One reason could be that such companies fail to surprise the investors with their earnings announcement or quarterly guidance. Perhaps, the neural system of the wealthy investors who own such shares just stops producing dopamine! That would push them into depression, prompting them to dump the shares in the market.

It is, of course, difficult for such companies to surprise investors consistently. But you can be surprised frequently — if your spouse or your friends gift you on other days as well!

(The author is an investment strategist.)

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