Risk Taking, Gut Feelings and the Biology of Boom and Bust

Testosterone can turn bull markets into bubbles and cause a financial crisis, world-class scientist John Coates has found out.

He explains what happens to our bodies when we take risks, what happens when we make or lose a lot of money. When young men are high on ambition and drunk on success at places like Wall Street. Coates, Senior research fellow in Neuroscience and Finance at the University of Cambridge, has taken a closer look at our male dominated world of financial traders and how they are connected with physiological coding that has been developed throughout human history.

“First I thought hormones is something women have and men don’t,” he jokes on stage at DLDwomen. But the matter has a serious impact.

Coates, a former Wall Street trader himself, uses the expression “the hour between dog and wolf” (the title of his book) to refer to the moment of Jekyll-and-Hyde transformation traders pass through when under pressure. Based on a series of groundbreaking experiments, he outlines the connection - the feedback loop -  between hormones and success. Like animals get high on testosterone when winning fights, young males as well behave irrationally risky when making a lot of money. On the other hand, when losing a fight or the parallel example in the trader’s world, losing money, young males experience a rise in the levels of cortisol - the stress hormone that lowers the appetite for risk. These reactions are all physical. They’re based on body chemistry.

However, there seems to be a pretty straight forward solution to this biological problem. “Women on trading floors can function as stabilizers!” Women, and older men, do not experience the same body chemistry as young males. They have different biologies.

Overall, we need to understand body and mind as one organism, he says. There seems to be more biology in our decisions than we previously thought.