An interesting New York Times article cites a study that showed stock traders’ hormones – specifically male hormones – may play a role in market activity:
John M. Coates, a former trader who is now a senior research fellow in neuroscience and finance at the University of Cambridge, and a colleague, Joseph Herbert, laid it all out in the study, published in the Proceedings of the National Academy of Sciences. Measuring steroid levels of traders in the City of London, they demonstrated that successful traders were heavily influenced during market booms by a positive feedback loop fueled by increased levels of testosterone.It’s akin, Dr. Coates says, to the “winner’s effect” among male athletes, in which successive victories push testosterone levels higher and higher, giving the winner an advantage — until he begins to misjudge risk and take stupid chances. “Testosterone doesn’t create bubbles, but it exaggerates them,” Dr. Coates said. “It’s possible that bubbles are a male phenomenon.”
Likewise, when markets tumble, traders are stressed out by the uncertainty and volatility and produce a lot of cortisol; they fall into a negative feedback loop that turns them into emotional fear-mongers, rather than analytical thinkers. So they’re now prolonging and deepening the market plunge, and dragging down the economy.
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This makes me think of Alex Gibney’s documentary ‘Enron: The Smartest Guys in the Room’.
There were scenes in the movie that showed a very aggressive and macho culture at Enron.
Jeff Skilling, the CEO, set a tone that was very intense and engaged in high risk behavior. He set a Rank and Yank review system that drove employees to be cut throat and ended in something like 15% of employees being fired.
He led trips off roading and dirtbiking that evidently became part of the internal Enron lore and drove the macho brand.
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Iceland may be learning this lesson:
The Financial Times: “Icelandic Women to Clean Up Male Mess.” The article reported that Iceland had turned to two women to lead banks nationalized during the country’s brush with bankruptcy.Women, Dr. Coates explained, have only about 10 percent of the testosterone men have; their judgment is not bollixed by it. He said he also suspected that women were less likely to produce excess cortisol. So he advised getting “more women and older men on trading floors.”
Link to Financial Times article here…
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I think Nobel Prize winning micro-finance guru Muhammed Yunus might have figured this out too:
SPIEGEL: Why are 97 percent of your loan-takers women?Yunus: It took months and years to talk the women round, to convince them that they can handle money just as well as men or even better. After six years, we reached a man-woman ratio of 50-50. Then we noticed, that the families and households of female loan-takers enjoyed far greater benefits. So we changed our policy. Since then, we have focused entirely on women.
SPIEGEL: Does this mean that women hold the key to fighting poverty and hunger?
Yunus: We certainly noted that when given the opportunity, women handle money more efficiently. They have longterm vision, they manage money more carefully. Men are more callous with money. Their first reflex is to blow it by getting drunk in a pub, or on prostitutes or gambling. Women, on the other hand, are endowed with a tremendous sense of self-sacrifice and try to get the best out of the money, for their children, but also for their husbands.
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Maybe we need to let women rebuild the economy so it will actually work. I’m still feeling this Valerie Jarrett lady.
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