Dolores Kong, Boston Globe

It looks like an outfit only the Marquis de Sade could love. But the black body suit, with water hoses running through it, isn't an instrument of torture. It's a research tool for understanding the peculiar suffering investors have come to know all too well in recent weeks: watching the stock market plunge, regain some ground, and then cascade ever lower.

Dan Ariely, a professor at the Massachusetts Institute of Technology, uses the specially designed two-piece synthetic suit, along with computer stock market simulations, online surveys, and other methods, to investigate the agony - and the ecstasy - of participating in the markets.

By better understanding the pain of investing, Ariely and others in the research field known as behavioral finance hope to help individual investors cope, especially in times like these. With the Nasdaq Composite index on a wild roller-coaster ride - up a record 10.5 percent one day last week, then down 3.2 percent the next - the record number of investors in today's market need all the understanding and help they can get.

In the pain/pleasure lab, Ariely demonstrates how the heavily ribbed garment works: When near-freezing water flows through the suit and chills a research volunteer's body, that represents physical pain. When hot water warms the volunteer, that represents pleasure.

On the computer, a simulated stock market crash represents psychological pain, and a rising market, pleasure.

Of course, there is no direct connection between the suit and the gyrations of the stock market. No volunteer is strapped into the device and then made to watch as the market plummets. That would be true torture. But Ariely, a specialist in both psychology and marketing, sees remarkable parallels in the two kinds of suffering.

"To me, it's the same,"' said Ariely, who teaches at the Sloan School of Management and holds a dual appointment at the Media Lab. "It could be [physical] pain. It could be the stock market. It doesn't matter."

In both cases, Ariely finds that people's perception of pain depends on the pattern of the pain. For instance, if the water running through the special suit is at its coldest and most painful at the end of the experiment - or if the stock market crashes near the end of the trading day - that's harder to take than if the biggest hurt happened at the beginning.

Anyone who has felt the pain of watching the real-world stock market tumble this year might well agree.

Should an investor sell everything and take the losses, or buy beaten-down tech stocks in the hopes they can only go up from here? Should he or she stare at the losing ticker symbols streaming across the bottom of the TV screen during financial news shows, or unplug the tube?

The growing body of behavioral research suggests that if investors realize what pains them, they won't overreact to the emotional and psychological intricacies of being in the markets.

For instance, if investors know that research has found a stock crash at the end of the day to be more painful than one at the beginning, perhaps they won't sell for a loss in a knee-jerk reaction just before the closing bell.

But that's not to say it's easy to change investor behavior.

"It's really hard. The brain sends us all kinds of signals, fight or flight," said Hersh Shefrin, a finance professor at the Leavey School of Business at Santa Clara University in California, and author of the book, "Beyond Greed and Fear: Understanding Behavioral Finance and the Psychology of Investing."

So even though investors may know at some level it's best to be in the market long-term and not overreact to short-term movements, "Our mind interprets signals from financial markets as if we're in the days of the hunter-gatherer. We haven't evolved so our emotional side knows the difference," Shefrin said.

From Santa Clara University to MIT, researchers are exploring such fascinating - even painful - questions about deep-rooted investor behavior as:

Why do people tend to hold on to their losers too long, and sell their winners too soon?

Why do investors with decent track records begin to see their performance suffer once they start trading online?

And why do people feel more pain when the stock market crashes near the end of the day?

Terrance Odean, assistant professor at University of California at Davis's Graduate School of Management and a leading behavioral finance specialist, has often found pain - or the desire to avoid it - to be a driving force behind buy, sell, or hold decisions.

In his studies of investors who won't sell their losers, Odean said, he has found people want to "avoid the realization of their loss that engenders their regret. Regret is a form of emotional pain, and they hope that if they put it off long enough they don't have to experience it."

Investors may also hold on to their laggards because they don't want to see the stock price skyrocket after they sell for a loss. An investor might say: "If it goes back up again, I'm going to regret having sold it," according to Odean. "It's a double incentive just to kind of hang on to it."

And there can be pain even when people sell for a gain. "Yes, it's painful to sell winners too early. If it really skyrockets, it's hard," said Odean, who also has studied the performance of online traders and investment clubs.

In 1985, Shefrin of Santa Clara University helped coin the phrase "disposition effect" to explain this strange behavior by investors of "selling their winners too early and riding their losers too long."

Shefrin hypothesizes it's human nature to sell winners too soon because "we're anxious to have the pleasure now," and to hold on to losers too long because "we like to delay the pain."

MIT's Ariely and his colleague, Michal Strahilevitz, a marketing professor at the University of Arizona, Tucson, are finding in their online surveys that investors appear to react differently to the pain of a crashing stock market, depending on their personalities and the psychological context in which they place their investments.

For instance, people who trade frequently tend to be more overconfident, have a less stable sense of self-esteem, and worry more about their trades. Thus, they feel the pain of a market meltdown more intensely.

"It's painful for everyone when you lose money, but when you spend four hours a day trading ... the pain is that much more excruciating," said Strahilevitz, who acknowledges she's an active investor herself. "The more you monitor, the more time you spend looking at your portfolio, the more pain you're going to feel while things are going down."

Ariely and Strahilevitz also are conducting online surveys about topics such as the complicated emotions that go into a decision to sell and that lead people to pick their own stocks. Ongoing surveys are available at a Web site sponsored by the Media Lab and the Sloan School of Management, ilab.mit.edu.

For Ariely and other researchers, there's no pleasure from studying pain for the sake of it. Rather, the gratification comes from better understanding pain, in order to help investors understand their own behavior, and develop ways to cope.

Ariely's bottom-line advice to numb the pain? "It's better not to look at the stock market when it's not doing well."