Don’t trade when you’re high

False memories are a serious issue in law enforcement. Ever since the groundbreaking work by Elizabeth Loftus we know that eyewitness testimony on crimes not only is unreliable, but it is relatively easy to plant false memories in otherwise healthy people.

But false memories are also a problem for investors. I have written several times before about our faulty memories and how we are likely to remember our past successes more reliably than our past failures (see here and here, for example).

Meanwhile, a new generation of investors are coming to the market and unlike previous generations, smoking marijuana for them is something that is legal and socially accepted. And don’t get me wrong, I am happy that cannabis is being decriminalised all over the world because if you know anything about THC (the active ingredient) you know that it is no more harmful than smoking tobacco.

Or is it?

In a recent set of studies, Elizabeth Loftus teamed up with a group of researchers from the University of Maastricht, Netherlands, (no jokes about how this was meant to be done in the Netherlands, please) to see how susceptible eyewitnesses were to false memories when they were high. 

They recruited students in Maastricht and Sydney who would volunteer to get a dose of THC (I guess it wasn’t hard to find volunteers for this study) and then watch scenes in a virtual reality simulation of two people getting into a fight at a train station or where somebody was robbed in a bar. Unfortunately, it turned out that people who were high while witnessing these scenes were more susceptible to false memories and false recall when asked immediately after the event while they were still high. They were particularly susceptible to false memories when prompted by the interviewer that something may or may not have happened. However, the really worrisome outcome that some effects of false recall and false memories persisted a week later when the participants were asked to recall the situations when sober. The use of cannabis had literally changed their memory of events in the past.

The implications for police investigations are obvious, but what concerns me far more is that people who habitually use cannabis should not be trusted as investors. They are less likely to learn from their past mistakes and, quite frankly are far too relaxed about their investments.