Dopamine Nation - Foundation Wealth Planners

Addictions can be the bane of our modern existence. Getting hooked on something can be quite easy and not readily acknowledged. The range of addictions can stretch from the extreme such as narcotics, to the very simple such as checking the news on a phone. They can be a mild irritant, an imagined way to temporarily blow off steam, or a life altering and ongoing disaster many struggle to escape from.

What plays a role in forming addictions? Dopamine. Psychiatrist and Stanford University professor Anna Lembke explores the role dopamine plays in our lives in her new book, Dopamine Nation: Finding Balance in the Age of Indulgence.

Lembke confronts readers with stories from some of her patients who have interesting and strange addictions. Lembke even admits she once had an addiction to romance novels! The stories highlight how people get caught into something of a consumption cycle they cannot escape from and sometimes continually escalate. In the worst instances, they lead to incredible damage to their lives and relationships.

During a pleasurable experience our dopamine levels rise, and we feel good, but after the experience ends there’s a deficit that will cause the craving or withdrawal. Lembke explains this as our body trying to balance things out. If someone continually goes back to that pleasurable experience, their dopamine increase gets smaller and smaller, while the deficit that causes craving or withdrawal afterward gets bigger and bigger. Addiction forms as we continue to chase that decreasing dopamine and avoid the deficit, pushing us out of balance.

The idea of balance is one that Lembke uses throughout the book as she highlights how our minds aren’t necessarily well adapted for our modern environments. We’re here today because of how our ancestors survived and procreated for hundreds of thousands of years by being able to balance pleasure and pain.

In the caveman days, it was a world of scarcity and ever-present danger. Our ancestors might have celebrated when finding the nourishment that kept them alive for the day, but they understood danger lurked and tomorrow they’d need more nourishment. Our brains evolved to very quickly regulate dopamine by keeping us vigilant and pursuing the things that kept us alive. And scarcity meant the pleasure of the dopamine hit of finding and eating a meal would be quickly tempered because the next bite wasn’t easily accessible in a fridge or pantry. There was little chance of overindulgence. This was the reality of life for a long, long time.

In comparison, the modern world we inhabit has been with us for a blink of an eye and it may be some thousands of years before our minds catch up with what we have. The problem with the modern world is its abundance which offers pleasure, dopamine release and potential addiction in a multitude of areas without balance. One of the most recent being readily accessible stimulus from our phones and social media.

The reality that many of us don’t need to fight and struggle is a positive, but Lembke also argues the balance may be out even further because of how we’ve come to see discomfort. Pain and struggle aren’t something to aspire to, but they are often seen as something to avoid at all costs. Many of us try to eliminate even minor discomfort, even ensuring children see no discomfort. The result overall is we need more reward to feel pleasure and a lower level of discomfort to feel pain. Out of balance.

How does any of this help with money? The book gives a better understanding of how our minds function and there are some scenarios and solutions offered that may be beneficial in understanding why some struggle is beneficial, recognising when we are out of balance and getting ourselves back in balance or just staying in balance.

A story Lembke tells is about a WW2 doctor who observed soldiers with severe combat wounds. Of those noted with certain wounds, such as extensive soft tissue damage, compound fracture, penetrated head, chest, or abdomen, and were clear mentally and not in shock, 75% reported having no pain in the aftermath of their injury. The doctor’s conclusion was their lack of pain was relief brought on by the injury because they were able to escape an exceedingly dangerous environment.

While war and investing can’t be compared, the chemicals in our minds and bodies may not see the difference. Relief is relief. A spike in pleasure prompted by escaping pain will feel similar, regardless of the circumstances prompting it.

If anyone has ever found themselves holding a stock that’s fallen significantly after a poor result, they might recognise the relief feeling of the dead cat bounce. After a massive fall, sooner or later the stock has fallen so hard that a bounce is inevitable, and it will turn green again. For the investor, there’s a feeling of relief and almost a euphoria as the punishment has ended and possibilities of profit once again re-emerge in their mind.

It’s quite dangerous to not recognise this relief as one’s mind being out of balance. The feeling of relief convinces investors not to sell when it’s probably their best opportunity to make a quick exit before another fall. It’s why investors who punt on individual stocks can find themselves left holding losers for long periods. Those overcome with emotion see the bounce as a reason to hang around, a signal good days are ahead. A day later the stock turns down again and they’ve been duped by their own mind!

What about a more diversified portfolio?

If balance is required, then there might be two solutions. One, accept and embrace financial markets as they function. The good, the bad and the ugly. Historically markets are generally up more than they are down, 60-70% of months are positive, depending on the country. If we need more reward to feel pleasure and a lower level of discomfort to feel pain, those 30-40% of poor months will likely feel worse than those 60-70% of good months, but it’s an acceptance that pain will emerge at some point.

Alternatively, change the frame. If we check our portfolio or markets too much, resolve to focus less on those and more on the plan and the goal. Are we still on track when saving and investing towards our goal? Can we still comfortably draw down on our portfolio to cover expenses in retirement?

If the answers are yes, then how much use is a portfolio number on any random day or even what markets are doing? An addiction to looking at them can only put us out of balance.