Regulating Hormones on the Trading Floor
A new article in The Financial Times by Gillian Tett looks at the research of trader-turned neuroscientist John Coates, who believes that hormone levels play such an important role in the world of finance that regulators should start monitoring the hormone levels of traders.
“While an excess of testosterone can sometimes produce individual success, collectively it can create excessive aggression, dangerous overconfidence and herd behaviour.”
Coates has identified a few key hormonal issues that both benefit and plague traders at work.
*An excess of testosterone that Coates dubs the “irrational exuberance hormone“ is what he feels is responsible for the sort of “bullish optimism and risk-taking” that can easily get out of control.
*The hormone cortisol can be helpful in sharpening our defenses, but over long periods of unpredictable stress it gets elevated and can then “promote irrational pessimism and risk aversion”.
*The vagus nerve is associated with heart rate and adrenalin levels; a healthy individual can be said to have good “vagal tone”. But traders with impaired functions lose vagal tone and find both their bodies and minds in a continually stressed state.
“A better biological mix … will mean fewer swings in testosterone and cortisol, and thus fewer market dramas.”
Coates suggests two primary ways of dealing with the fluctuating hormones of traders.
1. Monitor traders’ biological fluctuations.
Regulators and banks could utilize heart monitors and blood tests to check for hormonal swings.
2. Hire more women and older men.
Both female traders and older male traders tend to have better vagal tone and lower testosterone levels.
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