John Coates, a former derivatives trader who retrained himself as a physiologist and neuroscientist, connects the disparate realms of economics and human physiology. He says:
Under circumstances of outrageous success or terrifying failure, our biology can overreact; and when this happens to traders and investors, they suffer an irrational exuberance or pessimism that can destabilize financial markets and wreak havoc on the wider economy.The "molecule of irrational exuberance" that flood the bloodstream and brains of traders poised to make the proverbial kill (the winning trade) is testosterone, while that of irrational pessimism is the stress hormone cortisol. Under the influence of a high level of testosterone a normally prudent trader can morph into an inexplicable risk-taker. Likewise, cortisol drives traders into a mode of risk-aversion, and in the process, a bear market into a crash.
If human biology effects the market thus, then to ensure greater stability in the market a biological strategy ought to be implemented:
One way to do that would be to encourage a more even balance within banks among men and women, young and old. Women and older men have a fraction of the testosterone of young men, so if more of them managed money, we could perhaps stabilize the markets. We could also look to sports scientists for guidance, for they are the ones with the most skill at managing biology in the interests of performance, at developing a resilience to exuberance, fatigue and stress.
First it was technology, whose ability to change the ecology of the human brain was fiercely argued by Nicholas Carr in his book The Shallows. Then neuroscience invaded literary studies, as professors of literature scribbled into contention a connection between cognitive science and literature.
Finally it's the market! The human brain has never been so valorized without being traded on NASDAQ.
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