Norepinephrine
Norepinephrine was historically called noradrenaline. Norepinephrine is released during sudden stress. Norepinephrine itself stimulates the release of the stress hormone cortisol, described below. Norepinephrine causes the rush of tension that people feel when precipitously surprised, and it prepares the body for the "fight-or-flight" response.
During acute stress, people experience psychological symptoms of decreased attention span, hypervigilance, all-or-none (black-and-white) thinking, and increased focus. Physical signs of sudden stress include increased heart rate, sweating, flushed skin, and rapid breathing. Many of these symptoms are the direct result of norepinephrine release in the body.
Panic is a result of sudden norepinephrine release from a deep mid-brain region called the locus ceruleus. It takes great cognitive control to prevent panicky feelings from escalating into catastrophic thinking and impulsive "fight-or-flight" behavior.
One physiologic change resulting from repeated norepinephrine release is high blood pressure. High blood pressure is common on Wall Street, and it may be a sign that investors are under excessive chronic stress. Common medications used to treat high blood pressure include beta-receptor blockers, such as propranolol. Beta-blockers act on a subtype of norepinephrine receptor. These medications can manage both the physical effects of chronic stress (high blood pressure) and the brain basis of acute anxiety.
According to researchers, propranolol alters risk/return perceptions in financial experiments: "Propranolol [a beta blocker] produced a selective change in volunteers' decision-making; namely, it significantly reduced the discrimination between large and small possible losses when the probability of winning was relatively low and the probability of losing was high."8 That is, people who took propranolol saw less risk, but their perceptions of potential rewards were not affected. Propranolol is commonly prescribed to reduce "stage fright" during public speaking, and it is occasionally used in the treatment of other types of anxiety. Propranolol helps people take risk by decreasing their fear of large potential losses.
An investor I know commented that his beta-blocker medications, which he takes for high blood pressure, help him feel more clear-minded when judging risky investments. "Beta blockers help me be more rational and not get so afraid of risk..." He uses this effect to his advantage by changing his focus. While most investors are preoccupied with potential risks, he can objectively watch other investors: "I can see whether people are buying risky assets." He uses these observations to inform a contrarian investment strategy. On days he forgets to take his beta blockers, he feels more anxious and reactive to risk-related news.
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