Right brain or left, which should I use for investing?

A reader asks: Which side of my brain should I use for investing?

Archer replies:  In Isaac Asimov’s Foundation trilogy civilization has progressed to the point that it can accurately forecast human behavior, at least on the galactic level. In this fantastical world sociology is finally a “real” science, but now it’s called “psychohistory.” We’re not there yet.

Attempts to understand the “brain,” and in particular the brain as separate from the “mind,” have made progress in recent years but there’s still a lot of mystery. In his book, The Master and His Emissary: The Divided Brain and the Nature of the Western World, the psychiatrist and literary scholar Iain McGilchrist brings new insight into the relationship of the brain’s two hemispheres.

The book is long and, trigger warning, there is a discussion of Heidegger (more Being and Time, less Nazi apologist, however) but the idea can be more or less summed up as follows: the left brain is involved with details and modeling, with confirming and organizing a known reality. It likes things to be in order. It does poorly with paradox. It is, McGilchrist argues, reductive.

The right brain is more expansive and contextual. It is more receptive to the “new.” Left hemisphere understanding is built from the bottom up, one part at a time. Right hemisphere understanding is derived from seeing things whole because, says the author, it’s only from the whole that you can understand the nature of the parts. (As an aside, when it comes to the left/right dialectic, McGilchrist seems to have a thumb on the scale for the right.)

So what, you might ask, does this philosophical dog’s breakfast mean for investors? The nut graph is this: because the left hemisphere deals only with known entities it is incapable of truly original thought. It will consistently run up against the limits of its own methods, its own constrained perspective. Put differently, it will only see what has come before. Market research and portfolio management are by nature mostly left brain activities; they are reductionist.

So a money manager or financial analyst will know what he or she knows. As I note in my soon to be published book, Radical Problems, Simple Solutions: How Markets Can Help Fix Wealth Inequality and Solve the Retirement Crisis, they see patterns, extrapolate trends, envision historical analogues. Some see more complex patterns and have a deeper grasp of history than others. Some have better data. Some have the resources to drag their own fiber optic cables from Chicago to Jersey City to gain a fraction of a second advantage when trading. All good.

There’s a long history of applying bowdlerized scientific theories to the social sciences, with less than stellar results (see Einstein and moral relativism; Heisenberg and uncertainty). Somewhere out there, Alexander Pope is no doubt once again spiking the ball (“A little knowledge, etc...”).

But in this case, the left brain/right brain debate has currency for markets as well as for the larger world. For markets, it suggests that the classic left hemisphere approach to investing – building models, projecting cash flows, and so on – will never fully capture reality no matter how artfully constructed; it will necessarily be self-limiting. There will be constant surprises.

As his book’s subtitle suggests, McGilchrist is after something bigger. In his view, we live in an era increasingly dominated by the left hemisphere. This, he asserts, is much to our detriment, blinding us to the right side’s important contextual clues as to how the world works. For their part, McGilchrist’s critics suggest that this takes the Scottish psychologist a little far out over his epistemological skis. Maybe so, but it’s an interesting theory and one that meets the test of explaining at least some investor behavior.

Woof.