"End Period Dominance?"

Years ago, I was discussing an investment result with a business partner. The investment had been lackluster, but suddenly shot up and the impact seemed disproportionate. His comment was that it was "end period dominance." It was a striking term and since he had just gotten an MBA, I assumed it was part of the MBA lingo.

Years later, I referenced "end period dominance" and he looked at me strangely. I retold how I got familiar with the term. He chuckled and told me that he had just made up the term so that we could move on to another topic (I can be obsessive - as my Spinoza studies reveal).

This week new research was published in the Journal of Neuroscience that confirms "end period dominance." Studies show that that two different parts of the brain are activated, and compete with each other, when we make decisions based on past experience. They can cause us to overvalue experiences that end well despite starting badly, and undervalue experiences that end badly despite starting well—even if both are equally valuable overall.

Two parts of the brain are the amygdala and the anterior insula. The part of the brain called the amygdala works out the 'objective value' of an experience, such as a Sum of The Parts valuation. Meanwhile a brain region called the anterior insula was shown to 'mark down' our valuation of an experience if it gets gradually worse over time, such as occurs in trend-following investors.

Not only a likely culprit for an obsession with the end of movies, this "end period dominance" pattern can also affect quality decision-making and is likely to be an objective reason why the political candidates are willing to spend enormous funds to advertise right before the election season. It may be that a "happy ending" disguises an "unhappy experience."