And published in the New York Times no less….

Maybe the Meltdown’s a Guy Thing

By JUDITH H. DOBRZYNSKI

The New York Times

November 16, 2008

Will the down market never end? For months, policy makers around the world have tried bailouts, interest rates cuts, anything they could think of, really, to bring global markets out of their deepening depression. Once in a while, the markets do move up — only to fall again. Nothing seems to work for long.

Perhaps there’s a reason that everyone has overlooked: hormones.

If a research paper published earlier this year is correct, traders have become prisoners of their endocrine systems — testosterone, the elixir of male aggressiveness, during a bull market; cortisol, a steroid that helps the body deal with stress, when the bears take over.

The study suggests that raging hormones might explain why the men who rule the global markets send them rocketing up when they’re on a roll, and swooping down when they get scared, exhibiting judgment that can remind you of the guys in an Adam Sandler movie.

One investment strategist intuitively grasped the situation when he recently told The New York Times: “Normally markets are driven by fear and greed. Now it’s fear and fear.” In other words, instead of a rhythm of testosterone alternating with cortisol, it’s been cortisol and more cortisol for weeks. Actually there was a step in between — greed and greed, the bubble period. That’s when traders were making a lot of money, which made them pump out extra testosterone, grow overconfident and overcompetitive, and take on more and more risks that eventually went bust.

Now, in their funk, the lingering presence of cortisol makes them irrationally fearful, negative and risk averse.

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.

With markets swinging scarily from one day to the next — up 800, down 350, down 400, up 250 and so on — traders have become bundles of dueling hormones.

Though Dr. Coates hasn’t studied it — yet — he said “it’s possible” that testosterone-fueled competitiveness may even have driven investment bankers to be ever more creative in inventing the risky, complex securities designed to deliver more leverage and better returns. They got so creative that few people understood their risks.

Whoa, said Jonathan D. Cohen, director of the neuroscience program at Princeton. “This is intriguing, but correlation is not causation,” he said. “That’s the first thing we learn in science.”

Still, Dr. Bruce McEwen, head of the neuroendocrinology lab of Rockefeller University, said “it’s kind of exciting.” “Who knows,” he asked, “what other hormones are doing as well? There’s a lot we don’t know, because people don’t think about hormones in this context, but this is an aspect we have to consider. All bets are off.”

Dr. McEwen said it was too early to make recommendations to policy makers.

Not so Dr. Coates: The question reminded him of a headline in 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.”

At a time like this, investment banks may be loath to hire a new crew of women overnight. O.K., Dr. Coates continued, but in the meantime firms could do other things. Instead of scrutinizing mediocre or money-losing traders, they could focus more on the big profit makers whose hormones will rage, to make sure they’re not risking the bank.

There’s a lesson in this, too, for central bankers. “This explains why bubbles and crashes are beyond the control of central banks,” Dr. Coates said, and they should recognize that male traders simply don’t respond rationally to their pricing signals.

And maybe they should add more women to the mix, too.

http://www.nytimes.com/2008/11/16/weeki ... ekinreview

Copyright 2008 The New York Times Company

as a crude oil trader i have noticed a dramatic improvement in my trading since i became a chem eunuch. alot less emotion in the process

I'm pleased to hear of your success. The question is an intriguing one, both frivolous and serious. The site doesn't support compulsion, of course but in the wider community it would be probably appreciated right now. Traditional traders seasonal bonuses are in the spotlight, could this inducement improve global trading? [A rhetorical question, perhaps:)]

If the world had more eunuchs in all walks of life, maybe we wouldn't have wars either?

Very nice post, Jesus. I really believe that Ms. Dobrzyski may be onto something.

Certainly a little less testosterone should stop the overbuying and overselling that makes the stock market such a gamble.

But how the heck does she pronounce her name?

Kortpeel

Kortpeel (imported) wrote: Mon Nov 17, 2008 12:33 pm But how the heck does she pronounce her name?

"DOBRZYNSKI" is pronounced exactly as it is spelled. "R" is a vowel in Polish, as is "L". I have relatives with the family name "Zmrzl".

One might also note the growing phenomenon of people pulling themselves out of poverty in 3rd-world countries with help from "micro-loans", giving an entrepreneurial person what seems like a terribly small loan - a few $100 dollars - and they launch a family business with it.

The experience of those making such loans is that women are far more likely to be successful at it than men - and far more responsible at paying back the loan once they're established in business. The main function of the men, in many cases, seems to be hanging around with their buddies drinking, talking, gambling, and occasionally impregnating their women who are doing all the work.

- Finder

JesusA (imported) wrote: Mon Nov 17, 2008 8:30 am And published in the New York Times no less….

Maybe the Meltdown’s a Guy Thing

By JUDITH H. DOBRZYNSKI

The New York Times

November 16, 2008

At a time like this, investment banks may be loath to hire a new crew of women overnight. O.K., Dr. Coates continued, but in the meantime firms could do other things. Instead of scrutinizing mediocre or money-losing traders, they could focus more on the big profit makers whose hormones will rage, to make sure they’re not risking the bank.

There’s a lesson in this, too, for central bankers. “This explains why bubbles and crashes are beyond the control of central banks,” Dr. Coates said, and they should recognize that male traders simply don’t respond rationally to their pricing signals.

And maybe they should add more women to the mix, too.

It would be a waste of a lot of talent and a big training exercise to bring the women up to speed particularly when they should be home minding the kids and filling jobs that their more deserving male counterparts need to stay afloat. Dr Coates has overlooked an obvious and much more practical solution. The better answer would be to reduce the level of testosterone for the existing crew by application of a tried and true testosterone reduction modification (castration!!!). Any one electing to stay in the finance business would have to submit to this simple treatment which could be done on TV en masse in public. They could hold it in Denver and call it the Rocky MOuntain Oyster Show and Food Fest. The income from the TV right would exceed those of the Olympics and be more than sufficient to cover the costs of this programme.

Some will say that maybe the good doctor doesn't have it right and maybe testosterone has nothing to do with it. I don't really think that matters. I personally think that the crisis has been brought on by good old fashioned unmitigated Greed Greed Greed :( :(and not testosterone levels. However even if that is the case, castrating the lot of them would still have a great positive impact and be a effective deterrent against fexcessive greed in future. Either way you would bring about a significant change for the better in the behaviour of the financial community - a true win-win situation for all. It would have the added benefit of removing all the greed genes from the gene pool over a period of time and things would really calm down (eunuch calm) The world become much more orderly place whichever way this ball would bunce.

Aonther issue is "Better the devil we know than the devil we don't". Replacing men with women would not ensure against various gonad related problems in the investment community. Women also go through hormonal changes, mood swings, PMT and a whole host of things on their own You only have to look at Nancy Pelosi's track record to see that all is not perfect there either.

So after all this blather, my answer to the topic of this threads is "YES, YES, YES, THE SOONER THE BETTER" Just so long as they don't get carried away and carry it down to the level of more modest investors with 401(k)'s like myself!!!DD

DavidB - That is very interesting, positive testimony. Would be good to know of other people who achieve better professional outcomes as a result of becoming eunuchs.

But I do wonder: have other traders been asking you what the secret is of your improved performance?

I think politicians should all be eunuchized. And also genetically engineered, of course.