A New York Times
article titled “The Biology of Bubble and Crash” by John Coates introduces
human biology and how it changes when faced with stress and risk. In severe
cases of “outrageous success or terrifying failure” our body’s chemistry
changes. The body’s natural homeostasis is thrown out of whack when certain
hormones are produced at a higher level, which can “destabilize financial
markets and wreak havoc on the wider economy.” When a trader is deciding
whether or not to take a risk in order to make money a serge of steroids is
released into their blood stream which effects the way that they think and
move. Trader’s testosterone levels, men’s and women’s, clime in preparation for
the trade ahead. Adrenaline and cortisol are released by the adrenal glands,
which causes the release of dopamine in the brain. Dopamine “one of the most addictive drug known
to the human brain” alters the thinking of a trader and sometimes causes them
to make irrational decisions. The author of the article quit his job on Wall
Street in order to study the effects that these hormones have on traders and
the market. He runs controlled experiments with both male and female traders
and found that increase levels of testosterone leads to taking greater risks.
He than offers a fix to the problem by encouraging banks to balance their
employees between men and women, both young and old in order to balance risk.
As
we saw with the latest recession the financial world affects us all. Whether
you work on Wall Street or depend on retirement income from investments if
people make poor decisions when trading stocks because of increase hormone
levels it can have a devastating effect. Millions of people lost their jobs
when the financial markets collapsed and it’s hard to believe that some of it
could have been due to too much testosterone.
This
article is very interesting because it touches on a piece of trading that is
never discussed. The uncertainty tied to trading stocks and the stress it
causes can actually affect a person’s judgment and that’s pretty scary. I found
it fascinating how he quit his job to study that fact that people can be
influenced by chemical produced in their body. The article is well written,
although the experiments that the author ran seemed a bit small. In order to
make his findings more valid he should increase the number of test subjects and
add a control group to make shore that other factors are not affecting their
hormone levels.
