(FORTUNE Magazine) – You've burned your broker's number. Shut down your Ameritrade account. Rediscovered money markets. After a year of misery, your equity fever finally broke, and you don't want to fix it. Isn't it better on the sidelines? Small gains, but no pain. Still, you can't help sneaking a peek at the numbers--and noticing signs of life in what has long been declared a dead zone. Some TV talking head says he sees a bottom, and it looks as if Greenspan has finally regained his mojo. And then you hear that song again. That sweet, intoxicating tune you can't get out of your head. It's the sound of the mad, mad market calling.

Of course you're tempted. But before you dive back in, take a minute to have your head examined. Literally. You may find a brain that's very much at odds with the market. Chances are, investing never felt totally sane to you in the first place--and with good reason. A growing number of psychologists and behavioral economists are finding evidence that our brains just aren't wired for the markets we've created.

It has to do with our evolution--and the lack of it. The human mind is an innovative hybrid. Built on top of the older, "emotional" parts of our mammalian circuitry, there is a "rational" cerebral cortex. These newer parts of the brain allow us to anticipate the future, to think big thoughts--to be human. The problem is, the two are often at odds, and under the surface, our older instincts are always lurking. To avoid the headache of poor decisions, it helps to understand some of the pitfalls prompted by our brain.

Instant amnesia. Consider ice water. Better yet, stick your hand in a bucket of it and hold it there for a full minute. Yes, it hurts. (We know, we tried.) Now take your hand out and defrost. If we gave you 50 cents, would you do it again next week? No? George Loewenstein, a professor of economics and psychology at Carnegie Mellon University, conducts experiments like this to understand our behavior in the stock market. If he waits a week before asking his guinea pigs to relive the pain, they are much more likely to accept. Apparently a minute of discomfort seems easy, until your hand hits the water. Then the emotional mind takes over and tells you to pull your hand out. But once the discomfort is gone, so is that impulse. We might be once burned (or frozen), twice shy--but not for long. Loewenstein says the same thing happens in the market. "When it comes to investing, in some cases the two parts of the brain are out of sync," he says.

True, the ice-bucket research is just in a lab. But look at the behavior of mutual fund investors this year. As the markets fell and fell some more, investors yanked their money out (Ouch! It's cold!), withdrawing some $15 billion from stock funds in March, the largest monthly outflow in history. Then all it took was a 27% two-week Nasdaq rally in early April--capped off by a surprise 50-basis-point Fed rate cut--to reverse that. (How quickly we forget!) AMG Data Services estimates that investors plowed a net $5 billion into stock funds between April 5 and April 18 alone.

Arbitrary obsessions. Such extreme behavior prompts a question: If we built these financial markets, why do they freak us out so much? Why do they have a pull on us, rather than the other way around? The answer lies in the newer part of the brain--the analytic cerebral cortex. "The frontal lobes have fallen in love with themselves," says Ari Kiev, a psychiatrist who works with professional traders. Basically, we've outsmarted ourselves. Our species developed "rational" thinking using a system of rules, or biases, like a crib sheet. This system was refined for survival in a Stone Age world, and our brains have learned to trust it--maybe a little too much. Our hard-wired programming undercuts us in a host of sadly familiar ways.

For one, we're obsessed with benchmarks. Because we're social animals, we look at our relative position in the hierarchy of our social group and calculate a social cost of not participating--classic herd behavior. Just remember how it felt not to be buying tech stocks when all your friends were getting rich.

Similarly, we fixate on the price we paid for a stock. This can cause us to hold on to losers, or even worry about selling winners, based more on what should be random reference points than on the intrinsic value of the company behind it. Carnegie Mellon's Loewenstein calls this "coherent arbitrariness." In experiments, he finds he can convince one person to accept that listening to a loud noise is worth, say, a dime, and persuade another person to take a dollar for the same unpleasant experience. Afterward, both cling to their starting values as a reference point. To listen three times as long, one listener will demand 30 cents while the other asks for $3. Much in the same way, one who buys WorldCom at $60 a share may forever after view the stock's value in relation to that amount--even if it sells for $20 now and the climb to $60 looks like something out of a Jon Krakauer book.

Fatal optimism. Another trap we've all fallen into is what Hersh Shefrin, author of Beyond Greed and Fear: Understanding Behavioral Finance and the Psychology of Investing, calls a "confirmation bias." Put another way, it's our all too natural ability to convince ourselves of whatever it is that we want to believe. How? We simply give more weight to events that support our desired outcome than to any evidence to the contrary. (No revenues? No problem. This is not your father's economy!)

Compulsive monitoring. Finally, according to research by behavioral economist Richard Thaler of the University of Chicago, the more often people check stock prices (and in today's wired world it's hard to avoid), the greater they perceive their risk to be. That means they're more likely to do something foolish, like sell a good stock in bad times.

So, short of a lobotomy, what's the solution? Take your brain out of the equation as much as possible. Bet long on solid fundamentals and try not to think about it. And when you lose, take comfort: Your fellow animals are going through the same growing pains. The human brain just isn't as evolved as the markets.