Researchers at Caltech has linked the fear of losing money to a specific structure in the brain, the amygdala. Subjects in which it was damaged were willing to essentially disregard downside risks. The amygdala is linked to emotional responses of all kind of events, including threats, and it makes sense that something that might have evolved to mediate life and death fight/flight decisions is invoked in making the fear/greed tradeoff in investing.
It would be interesting to also know the neurological involvement in gain seeking. But while Caltech gets started on that, perhaps someone should do profiles on amygdala function in - let's say - VCs, day traders, hedgies, and Fannie Mae executives.
(Via Tyler Cowen.)